Why “junk” bond purchases occur?

Question

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?

In: 2

Answer 1

Junk bonds have higher interest rates so you get more money back when they mature. That higher rate is tied with higher risk – so people who tactically buy them do a lot of analysis on that risk to make the most sound investments they can.