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What is a junk bond?

Junk-bond

A bond that has been given a particularly low credit score by a ratings agency. They're riskier than other bonds, since the companies issuing them are deemed more likely to face financial difficulties. But they may offer higher returns in exchange.

Where have you heard about junk bonds?

The term crops up when a business or country experiences financial turbulence and its bonds are reduced to 'junk' status. In the face of economic challenges, Greek government bonds were given a junk rating in 2010.

What you need to know about junk bonds.

Credit ratings are given to bonds so investors can gauge their stability. You're more likely to get your money back if you invest in bonds with higher ratings, since they're issued by financially secure companies. The highest rating is AAA. Bonds are given 'junk' or non-investment grade status if they have a rating of BB or less.

Some investors specialise in junk bonds since their riskier nature means they tend to offer higher yields. These individuals are willing to accept they may not get the money they invested back.

Find out more about junk bonds.

Bonds come in a range of shapes and sizes. For more information, see bonds and bond yield.

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