Recent Examples of junk bond from the Web
And the extra yield that investors demand for buying junk bonds compared with Treasuries hasn’t been surging, which would be a sign of greater unease about credit risk.
But the stockmarket has reached new highs as real interest rates have fallen: yields have dropped across all asset classes, from property in big cities to junk bonds.
Now, in the same way that the rise of junk bonds created an entirely new lucrative finance niche in the 1980s, Bitcoin’s rapid ascent has pulled even the most traditional financial institutions into the fray.
The one area that’s inarguably hurt here are highly leveraged companies like real estate investment trusts, like some of the private equity funds, certainly like some junk bond funds.
The deal, which allowed it to borrow at well below the going rates on junk bonds, was the latest example of firms putting all their cash-generating assets into separate entities that are used to back the debt.
The latest bonds have received an initial credit rating of B- from Standard & Poor’s and Fitch, meaning they are rated as junk bonds.
For high-yield or junk bonds, those rated below investment grade, the story is more or less the same (see chart 3).
Stein even wrote a book on the junk bond scandal of the 1980s, A License to Steal: The Untold Story of Michael Milken and the Conspiracy to Bilk the Nation.
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First Known Use of junk bond
Financial Definition of JUNK BOND
What It Is
How It Works
A junk bond works the same as most other bonds -- an investor purchases a bond from a bond issuer with the assumption that the money will be paid back when the bond reaches its maturity date. The difference between an "investment grade" bond and a "junk" bond is that the junk bond issuer may not be able to repay the original principal.
Bonds often receive this type of low rating when the corporation, municipality or other entity that issued the bond is facing financial trouble. In these cases, the credit risk on the bonds is fairly high -- in other words, there is a relatively decent chance that the junk bond issuer will have trouble fulfilling its repayment obligations (including interest and principal). However, many junk bonds also pay higher yields than investment-grade bonds in order to attract investors.
Why It Matters
While junk bonds can actually be a savvy addition to a portfolio, they're not for everyone. The junk bond market is largely dominated by institutional investors, so an individual would need to be willing to spend time researching and analyzing. Investors wanting to diversify their portfolio with junk bonds might also want to consider investing in a junk bond fund.
JUNK BOND Defined for English Language Learners
Definition of junk bond for English Language Learners
business : a type of bond that pays high interest but also has a high risk
Seen and Heard
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