What Is a Junk Bond?

Junk bonds are risky bonds issued by financially struggling companies that have a high risk of defaulting. They carry a higher yield to compensate for the added level of risk and serve as a market-risk indicator. Junk bonds have a higher risk of default due to uncertain revenue streams or a lack of sufficient collateral, and investors can monitor a bond's level of risk by reviewing the bond's credit rating. An example of a junk bond is Tesla Inc.'s fixed-rate bond with a low S&P rating.
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