Junk Bonds--

For many investors, the term "junk bond" evokes thoughts of investment. But don't let the term fool you - if you own a bond fund, these worthless-sounding investments may have already found their way into your portfolio.

In finance, a high yield bond (non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below investment grade at the time of purchase. These bonds have a higher risk of default or other adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive to investors.

Junk bonds differ because of the credit quality of their issuers. All bonds are characterized according to this credit quality and therefore fall into one of two categories of bonds:

·         Investment Grade 

·         Junk Bonds 

Junk bonds can be broken down into two other categories:

•  Fallen Angels - This is a bond that was once investment grade but has since been reduced to junk bond status because of the issuing company's poor credit quality. 
• Rising Stars - The opposite of a fallen angel, this is a bond with a rating that has been increased because of the issuing company's improving credit quality.

If you own such a bond fund, this is a good time to sell, because high-yield bonds offer scant refuge in today's volatile market.