What is Junk Bond in Retail? Explained

A junk bond, also known as a high-yield bond, is a debt security issued by companies or entities with lower credit ratings. These bonds typically offer higher yields compared to investment-grade bonds, compensating investors for the increased risk of default associated with lower-rated issuers. Retailers or corporations might issue junk bonds to raise capital, but investors should be aware of the higher risk involved. The term "junk" reflects the perception of a higher likelihood of default, making these bonds a riskier investment compared to bonds with higher credit ratings.