A bond issued by a company with a low credit rating, meaning there is significant risk the company might not pay back the debt. These bonds offer much higher yields to compensate investors for taking on this extra risk. The term reflects the low credit quality, not the actual quality of the investment.
A struggling company with a credit rating of CCC might issue a bond yielding 10%, while a safe company with a AAA rating issues bonds at 4%. The extra 6% yield compensates investors for the much higher risk that the struggling company might default.
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