Junk Bond (High-Yield Bond)
Junk Bond is informal for any bond rated below investment grade — i.e., below BBB- (S&P / CRISIL) or Baa3 (Moody's). Issuers pay a high coupon to compensate for elevated default risk. In India the regulated label is "non-investment-grade" or "high-yi
Junk Bond is informal for any bond rated below investment grade — i.e., below BBB- (S&P / CRISIL) or Baa3 (Moody's). Issuers pay a high coupon to compensate for elevated default risk. In India the regulated label is "non-investment-grade" or "high-yield".
Worked INR example
A BB-rated 3-year NBFC bond with 12.5% coupon vs. AAA PFC at 7.8% — the 470 bps spread is the junk premium. ₹10 lakh in the BB bond pays ₹1.25 lakh/year vs. ₹78,000 from AAA. But historical CRISIL data shows ~6% cumulative 3-year default rate for BB Indian corporates — so expected return after losses is ~10.5%, not 12.5%.
When to use
- Sophisticated investors with diversified credit portfolios (40+ issuers)
- SEBI credit-risk MFs that pool exposure and provide some diversification
- NEVER for emergency-fund / debt allocation
SEBI caveat
SEBI prohibits retail direct purchase of unrated / sub-IG bonds via public offering. Wholesale-debt-market access requires institutional / HNI status. Past failures: DHFL (2019, ~₹91k cr default), Reliance Capital (2021), Zee Group NCDs. Retail investors should access junk only through diversified credit-risk MFs and cap allocation.
Related terms: Credit Spread, Credit Rating, YTM.