High-yield debt, often referred to as junk bonds, is a type of bond that offers higher interest rates compared to investment-grade bonds. This higher yield compensates investors for taking on greater risk, as these bonds are issued by companies or entities with lower credit ratings. The potential for default is higher, meaning the issuer may fail to make interest payments or repay the principal. Investors in high-yield debt seek to earn more income, but they must be cautious. Economic downturns or poor company performance can lead to significant losses. Therefore, while high-yield debt can enhance portfolio returns, it also requires careful analysis and risk management.