What is "High-Yield Debt" meaning?

High-yield debt is a type of debt investment, typically bonds, that carries a higher risk of default but compensates investors with higher interest rates. These debts are issued by companies with lower credit ratings and are often referred to as "junk bonds."

Example

"The company issued high-yield debt to raise capital, attracting investors with its promise of higher returns despite the risk of default."

How is "High-Yield Debt" used in business?

Businesses often issue high-yield debt when they need to raise capital but may not qualify for investment-grade credit ratings. Investors seek high-yield debt for its potential to earn greater returns, though they must weigh the risk of the company defaulting on payments.

Pro Tip

Before investing in high-yield debt, assess the issuing company's financial health and the overall market conditions to ensure you're aware of the associated risks.

Related Terms

Junk Bonds, Credit Rating, Bond Yield, Debt Financing