answersLogoWhite

0


Best Answer

Junk bonds are risky investments, but have speculative appeal because they offer much higher yields than safer bonds. Companies that issue junk bonds typically have less-than-stellar

credit ratings

, and investors demand these higher yields as compensation for the risk of investing in them. A junk bond issued from a company that manages to turn its performance around for the better and has its credit rating upgraded will generally have a substantial price appreciation.
User Avatar

Wiki User

11y ago
This answer is:
User Avatar
More answers
User Avatar

Wiki User

16y ago

They have a higher risk of default, so they pay higher yields to persuade people to buy them.

This answer is:
User Avatar

Add your answer:

Earn +20 pts
Q: Why do junk bonds have higher yields than traditional bonds?
Write your answer...
Submit
Still have questions?
magnify glass
imp
Related questions

What do I need to know about high yield investments?

Yes, high yield investments which are also called junk bonds, are quite risky and that is why they pay higher yields. Safer investments will have lower yields, and include AAA and AA rated corporate bonds, government bonds, as well as Certificates of Deposit (CDs) among others.


Why would a person invest in junk bonds-?

"Junk" bonds pay a higher interest rate than high-quality bonds, in order to compensate for the risk of default. junk bonds can pay very high interest rates (gradpoint)


Why do junk bonds give a higher return than most corporate bonds?

Yes, but with much higher risk.


What is the order of treasury bonds junk bonds and corporate bonds from lowest to highest risk of default?

-U.S. Treasury bonds -Corporate bonds -Junk bonds


Why would investors buy junk bonds?

Firsly investors buy junk bond because they are cheaper.Although they have higher risk of default they also have higher return.


What is a low rated potentially high paying bond?

A low rated bond, also known as a high-yield or junk bond, has a higher risk of default but offers potentially higher returns to compensate for the increased risk. Investors seeking higher yields may consider investing in low rated bonds with the potential for higher payouts, but should also be aware of the increased risk associated with these investments.


Why junk bonds pay a higher interest rate than government bonds of similar maturity?

Interest rates increase as perceived risk increases. Government bonds have virtually no risk. Junk bonds are so called because they carry a high risk of default.


What is the percentage of returns for high yield investments?

High-yield investments, also called "junk bonds", are bonds at risk of default or other problems, but have higher returns. This makes them risky but potentially rewarding. Junk bonds provide an average return of between 5 and 6 percent as of spring 2013.


What is the difference between junk bonds and traditional bonds?

A junk bond is any bond with a BB or below rating. Also called high-yield bonds, they can become this way following one of two paths. In the days before Michael Milken, investment-grade bonds became junk because of various downturns in a company's fortune. Milken's great innovation, the one that made him so rich he could pay a billion dollars in fines to the federal government and still be rich, was creating bonds that started out life as high-yield paper.


What percentage of junk bonds default?

30?


What type of bond has the highest risk?

High risk bonds are called junk bonds.


What are the risks and benefits of buying junk bonds?

One advantage of purchasing junk bonds is it allows one to diversify investments over a larger group of different assets. The biggest benefit is they carry a high yield. However, junk bonds are also very high risk.