Junk Bond (High-Yield Bond)

A junk bond, more formally called a high-yield bond, is debt issued by a company or government with a lower credit rating, meaning a real, priced-in risk that it might not repay in full. To attract lenders anyway, these bonds pay a noticeably higher interest rate than safer, investment-grade debt. They can be a genuinely profitable investment if the borrower does end up paying back on time, but they carry real default risk that safer bonds don't, which is exactly why the higher return exists in the first place.