The main disadvantage of junk bonds is the risk of default, which can lead to a loss in value. Some other disadvantages include: - The risk of default means that they have a higher credit rating, which means you can pay more for them. - They usually have a shorter maturity period than other types of bonds. Junk bonds are high-yield securities that are issued by companies with a poor credit rating.
The main disadvantage is that they are not much fluid as compared to other types of bonds. Also, they are of fluctuation nature which means that their rate will change according to the changes in credit ratings. During the rescission period the value of these bonds declined very fast.
Junk bonds offer investors a higher return than other fixed-income securities, but they come with more risk. The main disadvantage of junk bonds is the risk of default. Companies in financial distress may be unable to repay their debt and may instead declare bankruptcy, resulting in a loss for the investor.
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