Junk Bonds Law and Legal Definition
Bonds rated lower than investment grade on their date of issue are called speculative grade bonds, derisively referred to as Junk Bonds. The lower-rated debt typically offers a higher yield, making speculative bonds attractive investment for certain types of financial portfolios and strategies. Many funds and other investors however, are prohibited in their by-laws from investing in bonds which have ratings below a particular level. As a result, the lower-rated Junk Bonds have a different investor base than investment-grade bonds.