Speculative-Grade Bonds (Junk Bonds)

Author:

Moneyzine Editor

1 mins

September 21st, 2023

Advertiser Disclosure

Definition

The term speculative-grade bond is used to describe securities deemed to not be of investment quality by a credit rating agency. Since the risk of default is higher with speculative grade bonds, investors will demand they pay a higher rate of interest too.

Explanation

The three credit rating agencies (Moody's, Standard and Poor's, and Fitch Ratings) examine the financial outlooks of corporations, and assign a credit rating to their debt. Generally, these ratings range from high quality debt (AAA/aaa) through what are considered extremely speculative bonds (C/CCC/Ca).

Investment-grade bonds are those carrying some of the highest creditworthiness ratings. This includes securities with ratings of Baa3 (Moody's) and BBB- (S&P / Fitch) or better. Securities with ratings of Ba1 (Moody's) and BB+ (S&P / Fitch) are considered non-investment grade or speculative-grade bonds.

Also known as junk bonds, speculative-grade bonds carry a higher risk of default relative to investment-grade securities. Junk bonds will provide investors with higher yields, which compensate them for the additional risk they take when lending these corporations funds. In fact, some institutional investors have policies prohibiting them from holding non-investment grade debt. If the issuing entity eventually improves its financial outlook, and is rewarded with an upgraded rating, the value of this debt can increase substantially, thereby providing holders with a capital gain too.

Explore Investing Further

Best US Trading Platforms and Stockbrokers
Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Best Forex Trading Platforms for Beginners Ranked
Best Swap-Free Forex Accounts for US Traders
Looking for a way to avoid swap fees while trading forex?
Best ETF Platforms and Brokers
By providing instant diversification for your portfolio, investing in ETFs can amplify the potential of any investor, novice or seasoned alike. We scoped the market to curate a list of the best ETF trading platforms available for US investors.
Best Automated Trading Apps & Platforms
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Best Stocks for Swing Trading and Where to Buy Them
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
Best Penny Stocks Under $2 to Buy
The table below lists the best stock picks under $2, listed on public exchanges.
Promising Penny Stocks Under $1 to Buy
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
The Best Technology Penny Stocks
This section will highlight the best EV-trading penny stocks available in the United States.
The Best EV Battery Penny Stocks to Buy
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
The Most Active Penny Stocks
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
New Penny Stocks to Buy
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.

Related Content

Biden Or Trump: Who Is Better For The Economy And Stocks?
Yup. This is one of those articles. It's an election year, and here in the U.S., we get to decide which old dude who’s been alive long enough to remember when there were only 48 states in the U.S. will be the leader of the free world.
March 19th, 2024
The Role of Accounting in Strategic Business Planning
When it comes to strategic business planning, accounting is front and center, shaping the course of action. At least it should be.
March 14th, 2024
How To Invest in Real Estate Without Becoming a Landlord
We all know that in order to build wealth and prepare for retirement, investing is the key. However, it can be hard to figure out what to invest in and how to put your money to good use. One of the most talked about ways to build wealth is owning property and being a landlord to bring in passive income. But what if you don’t want to do that? You can still invest in real estate!
November 15th, 2024
Investing In Nature: The Closest You'll Get To Your Money Growing On Trees
ESG (Environmental, Social, and Governance) has become a polluted word for many traders and investors - but that doesn't mean it's going completely away. Nor does that mean you can't profit from nature or sustainable practices. But there are some opportunities in the regenerative ag, conservation, and green real estate spaces.
February 29th, 2024
How to Invest $100 and Grow it to 6 Figures
Turning $100 into six figures is a goal no one should realistically have. But it's the question you might ask yourself: Can it be done? Sure. Probable? It's less probable than winning the lottery, but technically still probable - like finding a needle in a haystack the size of Canada. But possible? Absolutely.
October 29th, 2024