junk bonds
High-yield, low-rated
Junk bonds are high-yield corporate bonds with credit ratings below investment grade.
They offer higher interest rates to compensate investors for the greater risk of default.
The term emerged in the 1980s when such bonds financed leveraged buyouts and corporate takeovers: The company was acquired using junk bonds.
Despite the dismissive name, junk bonds remain a legitimate investment class for those willing to accept more risk for potentially higher returns.
Heavenly beings expelled below
- credit ratingAssigned measure of borrower reliability
- maturityFull growth achieved
- bondholdersOwners of debt securities
- creditorsThose owed payment
liabilities · restructuring · bankruptcy · insolvency · fixed income · issuance · refinancing
Abundant output ratio
- interest rateCost of borrowing money
- risk premiumExtra yield for uncertainty
- spreadTo distribute widely
- returnGo back again
income · callable · discount · par value · accrued interest · yield curve · basis points · investment return
Accepting possible harm
- speculative investmentMoney risked hoping for gain
- gambleStake on uncertain outcome
- volatilityRapid, unpredictable changeability
- leveraged buyoutDebt-funded corporate acquisition
hostile takeover · corporate raider · arbitrage · hedge funds · 1980s · risk appetite · boom and bust
Exchange for existing securities
- liquidityConvertibility to cash
- tradersProfessional buyers and sellers
- portfolioCollected works or assets
- Wall StreetAmerican finance hub
investors · mutual funds · ETFs · market makers · sell-off · rally · over-the-counter · Bloomberg
fallen angels
Heavenly beings expelled below
- credit ratingAssigned measure of borrower reliability
- maturityFull growth achieved
- bondholdersOwners of debt securities
creditors · liabilities · restructuring · bankruptcy · insolvency · fixed income · issuance · refinancing
high yield
Abundant output ratio
- interest rateCost of borrowing money
- risk premiumExtra yield for uncertainty
- spreadTo distribute widely
return · income · callable · discount · par value · accrued interest · yield curve · basis points · investment return · payout
risk-taking
Accepting possible harm
- speculative investmentMoney risked hoping for gain
- gambleStake on uncertain outcome
- volatilityRapid, unpredictable changeability
leveraged buyout · hostile takeover · corporate raider · arbitrage · hedge funds · 1980s · risk appetite · boom and bust
secondary market
Exchange for existing securities
- liquidityConvertibility to cash
- tradersProfessional buyers and sellers
- portfolioCollected works or assets
Wall Street · investors · mutual funds · ETFs · market makers · sell-off · rally · over-the-counter · Bloomberg · credit analysis
- bondsdebentures, gilts, eurobonds, bondholder, bondholders
- money jokesbroke jokes, poor jokes, stock jokes, loan shark, bubble burst
- finance termsnet profit, gross profit, budget, credit, debt
- securitiessecurities, shares, equities, stocks, stock exchanges
- bond termsyield, accrued interest, debentures
- fixed incometreasuries, T-bills, CDs, treasury notes, munis
junk bondstreasury bonds
Government-issued debt securities
government bonds · treasury notes · sovereign debt · municipal bonds · T-bills
junk bondsinsured deposits
Bank holdings with guarantees
savings bonds · certificates of deposit · money market funds · safe haven assets