Junk bonds (high-yield bonds) are corporate bonds rated below investment grade — BB+/Ba1 and below. They offer significantly higher yields (4-8% above Treasuries) to compensate for substantially higher default risk. Junk bonds behave more like equity than fixed income during downturns: they often plummet alongside stocks. Diversified high-yield ETFs (HYG, JNK) spread default risk across hundreds of issuers but still suffer in crises. Junk bonds have a place in aggressive portfolios for yield-hunting and as inflation hedges (corporate debt benefits from inflation eroding fixed payments). Allocate small percentages (5-10% of bond allocation) and accept the volatility.
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Junk Bond
August 22, 2026 · Aditya Gupta
Investing
Related terms
401(k)
A 401(k) is an employer-sponsored retirement plan where employees contribute pre-tax salary that grows tax-deferred until withdrawal. The…
Active Management
Active management is the attempt to outperform a benchmark through stock selection, sector rotation, market timing, or any…
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