Wall Street term for bonds listed as below investment grade (rated BB or lower) by the bond rating agencies. Junk bonds are issued generally by smaller or relatively less well known firms to finance their operations, or by large and well known firms to fund leveraged buyouts. These bonds are frequently unsecured or partially secured, and (although they tend to have volatile market prices) they pay higher interest rates: 3 to 4 percentage points higher than the interest rate on blue chip corporate bonds of comparable maturity period. Due to the perceived greater risk of issuer's default, they are considered speculative investments. To counter the pejorative connotations of the term 'junk,' issuers and brokers prefer to call them high-yield bonds.

Last updated on May 14, 2009 by Jack Parsons