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Junk Bond

Junk Bond

Nickname
Junk
Plural Name
Junk Bonds
Parent Asset Class
Fixed Income

Junk bonds are bonds issues to companies with poor credit

  • They are riskier than bonds issues to companies with good credit (and thus yield more)
  • Investors tend to buy junk bonds during bull markets
    • During good times the risk of default seems low
  • Investors tend to flee junk bonds during bear markets
    • During bad times junk companies are the first to go bankrupt
  • Junk bonds tend to trend and reverse with equities
    • They are often the last line of claims next to equity and the closest to it

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