High Yield Bonds are typically corporate bonds that are rated below investment grade by the major rating services. These bonds pay much higher interest than investment grade bonds, but there is usually a substantial risk of default, which is why they are often referred to as "junk" bonds.
Issued by corporations, high yield bonds are of less than investment-grade ratings (i.e., below a BAA rating by Moody's or BBB by Standard & Poor's). Because the credit risk in owning them is greater than higher-quality bonds, their yields are often higher. Also known as junk bonds.
High yield bonds (formally known as â€˜junk bondsâ€˜) are non-investment grade securities; that is to say, they are debt instruments issued by corporates without a credit rating usually considered appropriate for debt issuance. In accordance with the basic principles of risk and return, the higher risk of default inherent with such securities means the issuer has to offer a higher return (higher yield) to compensate for the higher risk of default.