Investing term
What is High-yield (HY) / Junk bond?
Corporate bonds rated below investment grade — companies with material default risk that pay much higher coupons to compensate.
High-yield bonds — bluntly called junk bonds — are corporate bonds rated below investment grade, issued by companies with real risk of not paying. They offer much fatter coupons to compensate for that danger. They behave more like stocks than safe bonds, tending to fall hard in recessions just when you'd want your bonds to be a safe haven.
High-yield bonds pay far more than Treasuries because the issuer is far likelier to default. The extra yield is compensation for risk.
For example
A shaky company's bond yields 9% versus 4% for a safe government bond — the extra 5 points is your pay for taking on serious default risk.
Learn it by doing
That's High-yield (HY) / Junk bond in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 19, Beyond Stocks).
Try the free lesson →Why it matters to you
High-yield bonds sit in an awkward spot: they pay bond-like income but carry equity-like risk. That changes how you slot them into a portfolio — counting them as "bonds" for safety is a mistake, because in a recession they tend to fall alongside stocks, exactly when you wanted your bonds to hold the line. The extra yield is the market's pay for that danger, not a free lunch.
⚠ Junk bonds aren't a safe-haven bond
In calm markets high-yield behaves like a bond; in a crisis it behaves like a stock, with default rates spiking toward 5–10%. If you hold bonds as ballast against an equity crash, high-yield won't do that job — it tends to crash right alongside the stocks you were hedging.