JUNK BOND Meaning and
Definition
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A junk bond refers to a type of high-risk, speculative debt security that is issued by companies with a below-investment-grade credit rating. Also known as high-yield bonds, junk bonds are considered to have a higher default risk compared to investment-grade bonds. These bonds are characterized by their higher interest rates or yields, which compensate investors for the increased level of risk associated with them.
Junk bonds typically have credit ratings below BBB- (according to Standard & Poor's) or Baa3 (according to Moody's). They are issued by companies or entities that may have a history of financial instability, a high level of debt, or limited cash flows. Due to their lower credit ratings, junk bonds often trade at a discount to their face value.
Investing in junk bonds can offer the potential for higher returns due to their higher yields. However, investors must also be aware of the greater probability of default. The risk is primarily associated with the issuer's ability to meet interest payments and repay the principal amount at maturity. Consequently, junk bonds are predominantly sought after by risk-seeking investors such as hedge funds or other institutional investors.
Junk bonds have gained popularity among investors who are willing to take on additional financial risk in exchange for potentially higher returns. Nevertheless, the term "junk" refers to the lower credit quality and not necessarily the ultimate investment outcome. It remains important for investors to carefully evaluate the financial health and creditworthiness of the issuing company before investing in junk bonds.
Common Misspellings for JUNK BOND
- hunk bond
- nunk bond
- munk bond
- kunk bond
- iunk bond
- uunk bond
- jynk bond
- jhnk bond
- jjnk bond
- jink bond
- j8nk bond
- j7nk bond
- jubk bond
- jumk bond
- jujk bond
- juhk bond
- junj bond
- junm bond
- junl bond
Etymology of JUNK BOND
The term "junk bond" originated in the early 1980s in the United States. It is a compound word composed of "junk", which means something of low value or poor quality, and "bond", which refers to a debt security issued by a company or government. This term became popularized during a time when a new type of high-risk, high-yield bond was introduced in the financial markets.
In the 1970s and 1980s, there was a significant increase in corporate takeovers, leveraged buyouts, and mergers. These transactions often required substantial amounts of capital, and companies started issuing bonds to fund these activities. However, some of these bonds had a relatively low credit rating, indicating a higher risk of default.
Idioms with the word JUNK BOND
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junk bond
A junk bond is a high-risk, high-yield bond issued by a corporation with a low credit rating, typically below investment-grade status. These bonds carry a higher risk of default but offer the potential for higher returns compared to investment-grade bonds.
Similar spelling words for JUNK BOND
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