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Junk bonds, also known as non-investment-grade bonds, high-yield bonds, or speculative-grade bonds, are bonds rated beneath investment grade by credit rating agencies (such as Standard & Poor’s, Moody’s, and Fitch Ratings). Junk bonds have a greater risk of default and, therefore, pay a higher rate of return (yield) in order to induce purchasers to invest.
Unfortunately, bond credit ratings are deceiving and many investors do not even realize that they own junk bonds. For instance, under the Moody’s rating scale, a bond rated “Ba1” is considered junk. Under Standard & Poor’s and Fitch Ratings, a bond rated “BB+” is considered junk. To an investor, Ba1 or BB+ often sounds safe even though it is very risky. Even worse, very few people realize the high likelihood that junk bonds go into default.
Financial advisors must use extreme care in conducting a suitability analysis prior to recommending junk bonds.
We have successfully represented many investors who were harmed by unsuitable recommendations of junk bonds. Please contact us for a free and confidential case evaluation if you believe that you have lost money due to investing in junk bonds.