Junk bonds are a type of corporate bond that carry a higher risk of default compared to investment-grade bonds. They are issued by companies with lower credit ratings, which means they are considered less financially stable. Because of this increased risk, junk bonds typically offer higher interest rates to attract investors. Investors often buy junk bonds in hopes of earning higher returns. However, they should be aware that these bonds can be volatile and may lead to significant losses if the issuing company struggles financially. Understanding the risks associated with junk bonds is essential for making informed investment decisions.