High yield, non-investment-grade bonds are commonly known as which type of bonds?

• A. Municipal Bonds
• B. Corporate Bonds
• C. Treasury Bonds
• D. Junk Bonds

Answer: (D)

High yield, non-investment-grade bonds are known as junk bonds. They carry higher credit risk because issuers are rated below investment grade by major rating agencies, meaning there’s a greater chance they won’t meet debt obligations. To compensate investors for that risk, these bonds offer higher yields. This is in contrast to treasury bonds (very safe, government-backed) and municipal bonds (often tax-advantaged and not defined by high risk), and to corporate bonds in general (which include both high-quality and high-yield issues). The term “junk bonds” specifically identifies the lower-rated end of the corporate-bond market.