riskiness into account.

The U.S. government is an extremely safe borrower, so when the U.S. government issues Treasury bonds, it can

pay a relatively low interest rate. Firms that appear to be safe borrowers, perhaps because of their sheer size or

because they have consistently earned profits over time, will pay a higher interest rate than the U.S.

government. Firms that appear to be riskier borrowers, perhaps because they are still growing or their

businesses appear shaky, will pay the highest interest rates when they issue bonds. We call bonds that offer

high interest rates to compensate for their relatively high chance of default high-yield bonds or junk bonds. A

number of today’s well-known firms issued junk bonds in the 1980s when they were starting to grow, including

Turner Broadcasting and Microsoft.

LINK IT UP

Visit this website (http://openstax.org/l/bondsecurities) to read about Treasury bonds.
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