What is a “Junk Bond”?
"A junk bond is, broadly, a bond with a non-negligible risk of default.  (""Bond"" ought to be defined elsewhere, but broadly it's a financial instrument you buy from a company or government, where they promise to pay you back the principal and some interest over time, on a particular schedule.) The name ""junk"" is a bit exaggerated: many of them are issued by respectable and reasonably stable businesses. junk bonds were required to do large leveraged buyouts.  This means: the company issued fairly risky, fairly high-yield debt, to buy out equity holders.  They have to pay a high rate on the debt because the company's now fairly highly geared (ie has a lot of debt relative to its value) and it may have to pay out a large fraction of its earnings as interest. What is a junk bond and how does it differ from a regular bond?  It's only a matter of degree and nomenclature.  A bond that has a credit rating below a particular level (eg S&P BBB-) is called junk, or more politely ""non-investment grade"" or ""speculative"".  It's possible for an existing bond to be reclassified from one side to another, or for a single issuer to have different series some of which are more risky than others.  The higher the perceived risk, the more interest the bond must pay offer in order to attract lenders. Why is there higher risk/chance of default? Well, why would a company be considered at higher risk of failing to repay its debt?  Basically it comes down to doubt about the company's future earnings being sufficient to repay its debt, which could be for example:" From wikipedia: 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. In terms of your second question, you have the causality backwards.  They are called junk bonds because they have a higher risk of default. "A ""junk bond"" is one that pays a high yield UP FRONT because there is a good chance that it could default. So the higher interest rate is necessary to try to compensate for the default Junk bonds are used in leveraged buyouts (LBOs) because such deals are INHERENTLY risky. ""Normal"" companies may have 20%-30% debt and the rest equity, so that the company will have to lose 70%-80% of its value before the debtholders start losing money on ""normal"" bonds. But in an LBO, the company may have only 10%-20% equity and the rest debt. Meaning that if it loses that small equity cushion, the value of the ""junk"" bonds will be impaired."
The issuer pays (negative money in this case) to the holder.  The person you sold your borrowed bond to gets this (negative) amount.  The person who you lent you the bond is eligible for that (negative) payment, they were the original holder of the bond.  When you return the bond you thus have to compensate the original holder.  Now turn around the cash flows and you're there. The new holder pays the issuer, the original holder pays you. Gundlach shared a chart that showed how investors in European “junk” bonds are willing to accept the same no-default return as they are for U.S. Treasury bonds. In other words, the yield on European “junk” bonds is about the same—between 2 percent and 3 percent—as the yield on U.S. Treasuries, even though the risk profile of the two could not be more different.  Sounds like a strong indicator to me. How might this play out in the US? "Were you thinking of an annuity? They guarantee regular payments, usually after retirement. In any case, every investment has counterparty risk. Bonds guarantee payout, but the issuer could always default. This is why Treasury bonds have the lowest yields, the Treasury is the world's most trusted borrower. It's also why ""junk"" bonds have higher yields than investment grade and partially why longer duration bonds have higher yields. As mentioned, there's bank accounts, which gain interest and are insured by FDIC up to $250,000. If the bank folds, they'll be acquired by another and your account balance will simply transfer. Similar to bank accounts are money market funds. These are funds that purchase very short term ""paper"" (basically <90 day bonds). They maintain a share price of $1 and pay interest in the form of additional shares. These have the risk of ""breaking the buck"" where they need to sell assets at a loss to meet investor withdrawal demands and NAV drops below $1.00. Fortunately, that's a super rare occurance, but still definitely possible. Finally, there's one guy I've seen on TV pitching a no risk high yield investment. I can't remember the firm, but I am waiting to see them shut down for running a ponzi scheme." US government bonds are where money goes when the markets are turbulent and investors are fleeing from risk, and that applies even if the risk is a downgrade of the US credit rating, because there's simply nowhere else to put your money if you're in search of safety. Most AAA-rated governments have good credit ratings because they don't borrow much money (and most of them also have fairly small economies compared with the US), meaning that there's poor liquidity in their scarce bonds. I let someone else pick and chose which junk bonds to buy and which to sell. So instead of holding individual bonds in my portfolio I hold an ETF that is managed by a man with a PHD and which buys junk bonds.   I get a yearly 15.5% ROI, paid monthly.  Buy and hold and you can get a good return for the rest of your life. It is only speculation when you sell. [] [Fitch Ratings is expecting China's first local government bond defaults, but timing uncertain] (https://www.cnbc.com/2017/09/25/fitch-ratings-is-expecting-chinas-first-local-government-bond-defaults-but-timing-uncertain.html)  [] [China LGFVs: fears mount of bond defaults] (http://www.financeasia.com/News/439998,china-lgfvs-fears-mount-of-bond-defaults.aspx)  [][Growing Chinese corporate bond defaults improve market transparency but could scare investors] (https://www.cnbc.com/2016/05/25/growing-chinese-corporate-bond-defaults-improve-market-transparency-but-could-scare-investors.html)  [][Why are Chinese bond defaults surging?] (https://www.breakingviews.com/features/breakdown-why-are-chinese-bond-defaults-surging/) "MBS is a fairly general term ""Mortgage Backed Securities"" which simply means that the bond is collateralized with mortgages.  Pass throughs are a type of MBS that is untranched: all bond holders of the deal are receiving the same interest and principal payments, there is no senior or subordinate class of bonds.   Agency passthroughs bond holders receive any principal and interest payments paid by the loans in the pool, minus a slice of the interest payment that pays billing and insurance fees (servicing and guarantee fees, usually a .5% slice of the mortgage interest rate).  On agency product (including Ginnies), if a loan defaults it will be bought out of the pool, with the bondholder receiving all of the expected principal and any interest due on the loan.  Agency deals with different classes of bonds are usually called REMICs.  Passthrough may also be split into  principal-only (PO) and interest-only (IO) pieces.   There is also a huge forward market in soon-to-be-issued passthroughs called the TBA market.  Ginnie Mae has two slightly different programs referred to as Ginnie I and Ginnie II.  Ginnie also has commercial and construction loan financial products.  Freddie and Fannie have the same type of financial products as Ginnie, but there are differences in the sort of loans that Ginnie has vs the other agencies, as well as subtle minor differences between the contract terms of the securities.  Ginnie is also more explicitly guaranteed by the federal government.  You may want to look at:  http://www.ginniemae.gov/index.asp (especially the ""For Investors"" and ""For Issuers"" sections.)  Wikipedia's MBS may be more clear than my description: http://en.wikipedia.org/wiki/Mortgage-backed_security#Types" Bonds are extremely illiquid and have traditionally traded in bulk.  This has changed in recent years, but bonds used to be traded all by humans not too long ago. Currently, price data is all proprietary.  Prices are reported to the usual data terminals such as Bloomberg, Reuters, etc, but brokers may also have price gathering tools and of course their own internal trade history. Bonds are so illiquid that comparable bonds are usually referenced for a bond's price history.  This can be done because non-junk bonds are typically well-rated and consistent across ratings. "you want more information on what? The general bond market? This article is getting at something different, but the first several pages are general background info on the corporate bond market.  http://home.business.utah.edu/hank.bessembinder/publications/transparencyandbondmarket.pdf  If you are trying to relate somehow the issue of federal debt ( a la treasuries) to corporate debt you will find that you are jumping to a lot of conclusions.   Debt is not exactly currency, only the promise of repayment at a certain date in the future. The only reason that U.S. treasuries ( and those of certain other highly rated countries ) is interchangeable is because they are both very liquid and have very low risk.   There is very little similarity to this in the corporate bond market. Companies are no where near to the risk level of a government (for one they can't print their own money) and when a corporation goes bankrupt it's bondholder are usually s.o.l (recovery rates hover at around 50% of the notional debt amount). This is why investors demand a premium to hold corporate debt. Now consider even the best of companies, (take IBM ) the spread between the interest the government must pay on a treasury bond and that which IBM must pay on a similar bond is still relatively large.   But beyond that you run into a liquidity issue. Currency only works because it is highly liquid. If you take the article about Greece you posted above, you can see the problem generated by lack of liquidity. People have to both have currency and be willing to accept currency for trade to occur. Corporate bond are notoriously illiquid because people are unwilling to take on the risk involved with holding the debt (there are other reasons, but I'm abstracting from them). This is the other reason treasuries can be used as ""currency"" there is always someone willing to take your treasury in trade (for the most part because there is almost zero risk involved). You would always be much more willing to hold a treasury than an equivalent IBM bond.   Now take that idea down to a smaller level. Who would want to buy the bonds issued by the mom and pop down the street? Even if someone did buy them who would in turn take these bonds in trade? Practically speaking: no one would. They have no way to identify the riskiness of the bond and have no assurance that there would be anyone willing to trade for it in the future.   If you read the whole post by the redditor from your first link this is precisely why government backed currency came about, and why the scenario that I think you are positing is very unlikely." The question in my view is going into Opinion and economics. Why would I buy a bond with a negative yield? I guess you have answered yourself; Although the second point is more relevant for high net worth individual or large financial institutions / Governments where preserving cash is an important consideration. Currently quite a few Govt Bonds are in negative as most Govt want to encourage spending in an effort to revive economy. Usually Bonds are used to raised capital when a lender doesn't want to take on sole risk of lending. If you are looking at raising anything below 10m bonds are not a option because the bank will just extend you a line of credit. And this is bad why? What is the total funding? What is the total return? Do you have the necessary facts to evaluate this?  Basing opinions on partial evidence makes poor public policy. Most municipal bonds might actually work out for the better good of communities. Certainly the total amount of bonds listed as going bad in this story is a tiny, tiny fraction of total bonds. The assumption that bonds have been issued with a negative coupon is not correct, or at least is has not occurred thus far.  We'll look at this future possibility in the final paragraph. For now, lets look at the current bond market. The issuance of government bonds which carry a negative gross redemption yield is the result of governments issuing bonds at an issue price which exceed the nominal/redemption price and any coupon yield receivable over the life of the bond.  I can find no instances of bonds with a negative coupon, though many have tiny positive coupon yields. The short seller of a bond with a negative gross redemption yield will be liable to pay the buyer the interest amount determined by the coupon.  If the short seller has borrowed the bonds in order to sell them, then the short seller will receive the interest due from the lender to offset the interest paid to the buyer.  If the short seller has not borrowed the bonds, but has sold them using some sort of synthetic contract such as a Contract for Difference, then the short seller will pay the coupon without receiving any offsetting payment. I thought this was an interesting question and it will be interesting to see if, at some time in the future, governments do ever issue bonds with a negative coupon.  To date, this does not appear to have happened. So what would happen if we assume that a government issues a bond with a negative coupon.  The buyer of the bond would be required to pay the equivalent yield to the government according to the bond contract specification.  If an investor sells short such a bond, they would then become entitled to receive the interest from the buyer.  If they have borrowed the bonds in order to sell them short, then they would pay any interest received back to the lender - this chain should eventually end with the ultimate owner/lender paying the government their dues.  If they have sold short using a synthetic contract, then presumably they would keep the interest from themselves. "The interest rate offered by a bond is called the nominal interest rate.  The so-called real interest rate is the nominal interest rate minus the rate of inflation. If inflation is equal to or greater than the nominal rate at any given time, the REAL interest rate is zero or negative. We're talking about a ten year bond. It's possible for the real interest rate to be negative for one or two years of the bond's life, and positive for eight or nine.  On the other hand, if we have a period of rising inflation, as in the 1970s, the inflation rate will exceed the (original) interest rate in most years, meaning that the real interest rate on the ten year bond will be negative over its whole life. People lost ""serious"" money on bonds (and loans) in the 1970s. In such situations, the BORROWERS make out. That is, they borrow money at low rates, earn inflation (plus a little more) pay back inflated dollars, and pocket the difference. For them, the money is ""free.""" You stumbled on your second paragraph when you said gold is debt.  It's not. It is an asset you can hold in your hand that has zero counterparty risk.  Didn't read the rest because if you fell over so early, it's likely I'd be here all day correcting the rest of it.