Asset Classes

Junk
Junk Bonds

Junk bonds are bonds issues to companies with poor credit

  • They are riskier than bonds issues to companies with good credit (and thus yield more)
  • Investors tend to buy junk bonds during bull markets
    • During good times the risk of default seems low
  • Investors tend to flee junk bonds during bear markets
    • During bad times junk companies are the first to go bankrupt
  • Junk bonds tend to trend and reverse with equities
    • They are often the last line of claims next to equity and the closest to it