Definition of junk bond
: a high-risk bond that offers a high yield
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Recent Examples of junk bond from the Web
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The upshot: Longer-duration assets (say, a 10-year Treasury, as opposed to a two-year one) and lower-credit-quality assets (like junk bonds) start to look riskier and less attractive.
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In early 2016 for instance, a single Goldman Sachs trader famously netted more than $100 million in profits by scooping up billions of dollars of junk bonds during a global market panic, and then unloading them once conditions settled.
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The rating agencies watch deficits closely, and a downgrade to junk bond status would be catastrophic for Italy’s ability to raise finance by making its debt unacceptable to the European Central Bank.
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Junk’s Milken analogue Robert Merkin (Steven Pasquale) is a financial shark in the vein of Gordon Gekko, trying to take over a struggling steel company with investments fueled by the titular junk bonds.
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Investors withdrew money from European junk bond funds every week for six months, according to EPFR Global data to late April.
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Bonfire of the Vanities may have been about junk bonds, though the book itself will probably never behave like one.
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That’s not much compensation, given that junk bonds tend to behave a lot like stock in bad markets.
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Meanwhile, Sprint keeps losing money — staying in business by selling junk bonds and aggressively cutting costs in an effort to regain profitability.
These example sentences are selected automatically from various online news sources to reflect current usage of the word 'junk bond.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.
First Known Use of junk bond
1974
Financial Definition of JUNK BOND
junk bond
What It Is
A junk bond is a fixed-income security that is rated below investment grade by one or more of the major bond ratings agencies.
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
Junk bonds are usually purchased as speculative investments. Although investors rake in higher yields, they risk the chance that they never get their money back.
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.
Source: Investing Answers
JUNK BOND Defined for English Language Learners
junk bond
Definition of junk bond for English Language Learners
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business : a type of bond that pays high interest but also has a high risk
Law Dictionary
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See words that rhyme with junk bond Britannica.com: Encyclopedia article about junk bond
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