Which type of bond is referred to as "junk bonds" that carry higher risk?

The term "junk bonds" refers specifically to high-yield bonds. These are bonds that are rated below investment grade, which indicates a higher risk of default compared to bonds with higher ratings. Investors are often attracted to high-yield bonds because they offer the potential for much higher returns than safer, investment-grade bonds. This higher potential for return compensates investors for taking on the additional risk associated with these bonds.

High-yield bonds typically attract speculative investors who are willing to accept the risk in hopes of achieving superior financial performance. This contrasts with investment-grade bonds, municipal bonds, and Treasury bonds, which are generally considered to be safer investments and thus carry a lower yield. The distinction is crucial for investors assessing their risk tolerance and investment strategies.