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.

 

 

Author of this article

Gergely Korpos

Author of this article

Gergely is the co-founder and CPO of Brokerchooser. His aim is to make personal investing crystal clear for everybody. Gergely has 10 years of experience in the financial markets. He concluded thousands of trades as a commodity trader and equity portfolio manager.

Gergely Korpos

Co-founder, CPO

Gergely is the co-founder and CPO of Brokerchooser. His aim is to make personal investing crystal clear for everybody. Gergely has 10 years of experience in the financial markets. He concluded thousands of trades as a commodity trader and equity portfolio manager.

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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