junk bond

Definition of junk bond

: a high-risk bond that offers a high yield

Examples of junk bond in a Sentence

Recent Examples on the Web But the new issue market for junk bonds is on fire this year because of investors’ relentless hunt for yield. — Marcus Ashworth | Bloomberg, Washington Post, "Junk Bonds Are a Haven in a Twitter Storm," 3 Dec. 2019 According to one source familiar with the matter, Barra called the meeting and pressed Dittes and Jones to agree to a deal, citing the risk of GM's credit rating dropping to junk bond status. — Chris Isidore, CNN, "GM CEO calls meeting with union, as strike drags on," 10 Oct. 2019 Second, holders of its $669m in junk bonds might take a hit. — The Economist, "Would WeWork’s implosion pose a systemic risk?," 28 Sep. 2019 Risk goes up The potential for rapid and nervous reaction now creates a risk in the higher-yield and junk bond markets. — Erik Sherman, Fortune, "The Party’s Almost Over, Say High-Yield Bond Investors," 15 July 2019 Although the 2017 state school funding revamp pulled CPS away from the brink of insolvency, the district’s finances are still shaky — as evidenced in its junk bond ratings. — Hannah Leone, chicagotribune.com, "To pay for new union contracts, Lightfoot, CPS relying on duct tape — and risky assumptions about the future," 15 Nov. 2019 Like its value is like that of junk bonds or a Baltic Avenue Monopoly property. — Los Angeles Times, "How TV learned to take hip-hop seriously," 12 Sep. 2019 The price underscores how hungry investors are to get their hands on higher paying securities, especially ones with BB ratings that carry less risk than the most speculative of junk bonds. — Sally Bakewell, Fortune, "Popeye’s Chicken Sandwiches Weren’t the Company’s Only Recent Big Seller," 6 Sep. 2019 Ford in 2012 was upgraded to investment grade, which is what a credit rating is called when it is not considered a junk bond. — Chris Isidore, CNN, "Ford debt has been downgraded to junk," 10 Sep. 2019

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.

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Last Updated

18 Jan 2020

Cite this Entry

“Junk bond.” The Merriam-Webster.com Dictionary, Merriam-Webster Inc., https://www.merriam-webster.com/dictionary/junk%20bond. Accessed 24 January 2020.

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More Definitions for junk bond

junk bond

noun

Financial Definition of 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

noun