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Junk Bonds: High Yields, High Risk


Mention junk bonds to many investors and they'll flinch at the thought of high-flying financiers of the 1980s such as Ivan Boesky and Michael Milken. There is a reason that junk bonds are so named, of course. These are the bonds that pay high yields to bondholders because they don't have any choice -- their credit ratings are less than pristine, making it difficult for them to acquire capital at an inexpensive cost. The end result for investors is that junk bonds pay high yields, but they also carry higher than average risks that the company might default on the bond.