Junk Bonds
Bonds rated BBB and higher are called investment grade bonds. Bonds rated lower than investment grade are colloquially referred to as junk bonds. The lower-rated debt typically offers a higher yield, making junk bonds attractive investment vehicles for certain types of financial portfolios and strategies. Many pension 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 securities may be harder to sell. In some cases the limited market for junk bonds can lead to a dismal cycle in which a company with financial difficulties will have its bond rating lowered, and that makes it harder to raise money, thereby deepening the company’s financial troubles… @