How are Junk bonds typically rated?

Junk bonds are typically rated below investment grade, which reflects their higher risk compared to investment-grade bonds. These bonds are issued by companies or entities that may have weaker financial health or a history of unstable earnings, making them more susceptible to default. The ratings for junk bonds generally fall into the categories of "B" or lower on the standard rating scales used by agencies like Moody's and Standard & Poor's.

This classification highlights the potential for higher returns, as investors usually demand higher yields to compensate for the increased risk associated with these lower-rated bonds. Understanding this rating system is crucial for investors looking to balance risk and return in their fixed-income portfolios. Other options, such as investment grade, tax-exempt, or high-quality, do not accurately reflect the nature of junk bonds.