What are junk bonds classified as based on their credit ratings?

Junk bonds are classified as high-yield instruments because they are rated below investment-grade by credit rating agencies. These bonds typically offer higher interest rates compared to investment-grade bonds due to the increased risk of default associated with lower credit ratings. Investors are attracted to junk bonds primarily for their potential for higher returns, which compensates for the elevated risks. The designation of 'high-yield' reflects both their attractive yields in the marketplace and the inherent risks connected to lending to issuers with lower creditworthiness. This classification helps investors assess their risk tolerance and investment strategy when considering bond portfolios.