In the world of bonds, the term junior means
having less claim to repayment. If you own a junior security, as such
bonds are known, and the issuing company goes out of business, you
have less claim on the company's assets than an investor who owns a
senior security issued by the same company. But all bondholders,
whether they own junior or senior securities, aresenior to, or have a
greater claim than, holders of preferred stock, who in turn are
senior to holders of common stock.
Junk bond
Junk bonds carry a higher-than-average risk of default,
which means that the bond issuer may not be able to meet interest
payments or repay the loan when it matures. Except for bonds that are
already in default, junk bonds have the lowest ratings, usually Caa
or CCC, assigned by rating services such as Moody's Investors Service
and Standard & Poor's (S&P).
Issuers offset the higher risk of
default on junk bonds by offering substantially higher interest rates
than are being paid on investment-grade bonds. That's why junk bonds
are also known, more positively, as high-yield
bonds.
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