A Junk Bond is a bond issued by a company with a lower credit rating than investment-grade issuers. Because investors take on a higher level of risk, these bonds usually offer higher interest payments, also known as yields.

Companies may issue junk bonds when they are growing rapidly, have significant debt, or operate in industries that investors consider less stable. While the higher yield can be attractive, there is also a greater chance that the issuer could miss interest payments or fail to repay the bond at maturity.

For investors, junk bonds can provide additional income and diversification, but they should be approached carefully. Understanding the relationship between risk and reward is essential when considering high-yield bonds as part of a long-term investment portfolio.