Also referred to as a "junk bond," it is a bond issued by a corporation or government whose ability to pay interest and repay the principal is in question to varying degrees. Normally, smaller, newer companies and third world countries must offer higher yields to attract investors.
High-yielding debt security rated BB or below by Standard & Poor's Corporation, or Ba or below by Moody's Investor Services. Very speculative and volatile, these bonds are considered a greater risk for investors than are investment-grade issues, and therefore pay higher interest rates to attract investors. Also known as Junk Bonds because of their low credit rating.