What are junk bonds?

Written by
Adam N.
Fact checked by
Updated
Feb 2024

Bonds issued by corporations or governments that have a credit rating below investment grade are sometimes referred to as junk bonds.

Despite the name, most of these companies and governments are in fact able to service their debts, but - perhaps because of their poor financial situation or outlook - a default is thought to be more likely to occur compared with investment-grade debt. To compensate for this, yields on these bonds are typically higher.

Just like with any other bonds, individual investors can buy these securities through their online brokers, although some brokers may require you to phone in to initiate a purchase.

Another way to invest in junk bonds is through a high-yield ETF (exchange-traded fund). This way, investors can have access to a portfolio of bonds that are diversified among various issuers, as well as according to credit quality and maturity. Again, buying and selling is done via your brokerage account.

What else do you need to know about bonds?

Want to learn more before deciding what’s your optimal bond allocation? You might want to check out these other articles to deepen your knowledge.

 

 

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Author of this article

Adam Nasli

Financial Wizard | Trading • Safety • Market Analysis

I bring extensive financial expertise as one of BrokerChooser's earliest team members. Personally, I tested nearly all 100+ brokers on our site, opening real-money accounts, executing trades, assessing customer services, and providing firsthand assessment. My professional background includes roles in the banking sector and a degree from Central European University, where I teach finance. My passions lies in in-depth research of the financial industry, building trading algorithms, and managing long-term investments.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology.

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