High-yield bond
Also known as: junk bond
A high-yield bond is a rated below investment grade by credit rating agencies, reflecting a higher assessed risk that the issuer could default on its payments. To compensate investors for that added , high-yield bonds pay a meaningfully higher than of similar maturity, which is where the more informal name, junk bond, comes from even though the underlying businesses are not necessarily in trouble.
Issuers of high-yield bonds tend to be smaller companies, more heavily indebted companies, or companies in or higher-risk industries that cannot access investment-grade . A can also become high-yield after starting out as investment grade and later being downgraded, a case specifically referred to as a .
High-yield bonds behave somewhat differently from in a . Their prices are more sensitive to the health of the broader economy and to company-specific news than to interest rate moves alone, since a weakening economy raises the odds of default across the high-yield universe at the same time. Because of this, high-yield bonds sometimes trade with a return pattern that has more in common with than with safer , and across many issuers matters more here than it does in a of .