Junk bonds (high-yield bonds; cats and dogs)

High-risk bonds issued by companies with doubtful solvency; in other words, they have a poor rating. There is a high risk of default, but at the same time an unusually high interest rate is promised (bonds issued by companies that are thought to be highly speculative. Junk bonds have low ratings and a high risk of default). – In the past, such junk bonds were often used to finance corporate takeovers in the USA. Investors hoped for an economic recovery of the company and thus for a far above-average return. Today, it is often argued that the chance of such a high return (trembling premium) compensates for the above-average risk of such securities. – See steam room, dingo stocks, secret tip, glamour stocks, Internet forums, catastrophe bonds, penny stocks, pump and dump, pyramid, reconstruction, terror papers, lemon trading, trembling premium, penitentiary goods. – Cf. BaFin Annual Report 2003, p. 125 f., BaFin Annual Report 2013, p. 137 f. (insurance companies are allowed to purchase high-yield investments to a certain extent; definitional).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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