If an entity is at a heightened risk of defaulting, who is lining up to buy those junk bonds? What’s the benefit? From vantage point, purchasing junk bonds holds much more downside risk than there are upside. So, what’s the point of purchasing these bonds?
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Much of the work of finance involves pricing and managing risk. The idea behind it is that (within reason) there is a return that is worth the risk.
For example, you might purchase a bond that has a 1 in a million chance of paying you back, but if it does, the bond pays back $10 million for every $1 offered. Given enough opportunities, this might be worth some speculation.
As long as one can spread out their “bets” and make enough of them with at least some reasonable expectation that some will pay off, then it becomes profitable. Now this is high risk, high volatility “investing” but it makes sense for some people.
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