Term of the Day
Wall Street slang for bonds listed at below investment grade (below the top four ratings) by agencies that rate bonds. Such bonds are frequently unsecured or thinly backed by company assets, and thus carry a relatively high level of risk for investors. Consequently, the bonds must pay high yields, commonly three to four percent above high-grade corporate bonds. Some junk bonds are issued by those seeking to raise funds to finance their buying of stock and takeover of corporations, the assets of which are liquidated to pay for redemption of the bonds.