Listen to a Business English Dialogue About Junk bond
Quinn: Hi Freddie, have you heard about junk bonds in finance? I’ve seen them mentioned, but I’m not exactly sure what they are.
Freddie: Hey Quinn, junk bonds are bonds issued by companies with a higher risk of default, typically due to their lower credit ratings. They offer higher yields to compensate investors for the increased risk of investing in them.
Quinn: Oh, I see. So, are junk bonds riskier investments compared to other types of bonds?
Freddie: Yes, Quinn. Junk bonds are considered riskier because there’s a higher chance that the issuing company may default on its debt obligations, which could result in investors losing some or all of their investment.
Quinn: That makes sense. Why would investors be interested in junk bonds if they’re riskier?
Freddie: Despite the higher risk, junk bonds can offer higher potential returns compared to investment-grade bonds. Some investors are willing to take on the additional risk in exchange for the possibility of earning higher yields.
Quinn: Got it. Are there different levels of risk within the category of junk bonds?
Freddie: Yes, Quinn. Within the category of junk bonds, there can be varying levels of risk depending on factors like the creditworthiness of the issuing company, the terms of the bond, and prevailing market conditions.
Quinn: I understand. How do credit ratings play a role in junk bonds?
Freddie: Credit ratings provide investors with an assessment of the creditworthiness of the issuing company and the likelihood of default. Junk bonds typically have lower credit ratings, indicating a higher risk of default compared to investment-grade bonds.
Quinn: Thanks for explaining, Freddie. It’s interesting to learn about the risks and potential returns associated with junk bonds.
Freddie: You’re welcome, Quinn. Junk bonds can be an attractive option for some investors seeking higher yields, but it’s essential to carefully assess the risks and consider your investment objectives before investing in them. If you have any more questions, feel free to ask!