Junk Bonds Definition

The much-used phrase ‘junk bonds’ is often poorly defined; many investors refer to any money-losing bond as a junk bond. However, a conventional definition would specify a junk bond as a high-risk bond with a low credit rating (perhaps BB or worse); the inference would be that a junk bond should potentially offer a high yield. Of course an investor that makes a considerable amount of money from investing in high-risk bonds may not refer to them as junk bonds. Another way to define a junk bond would be to say that any bond which is not an investment-grade bond is a junk bond.