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Dictionary of Financial Terms
 
  

 
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Junior security

   Junk bond
 
 
Definitions
 
 
Junior security
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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