Junk bonds are considered by the market the bonds that are more likely to produce a default. This debt is issued by companies or states that have a low rating or rating to be at higher risk of default than others with higher quality ratings. Many are the reasons why these issuers have low ratings… from political to the most common, economic reasons. Playpen is a quite common financial situation before bankruptcy. But if these kind of bonds don’t go into default, in exchange for the risks taken offer investors higher levels of profitability.
The rating agencies rating junk bonds are made mainly Standard & Poor’s, Moody’s and Fitch. In the case of Moody’s are all those junk bond issues rated Ba1 or lower and in the case of Standard & Poors all those issues rated at or below BB +. You can check their websites to see their rating system. It is interesting to follow the evolution of the profitability of junk bonds as a whole as they are often one of the most sensitive to indicate the arrival of possible economic downturns assets.