Corporate debentures are secured through the general assets owned by the entity and government debentures are secured through their ability to tax and regulate the economic environment. Unsecured bonds are not backed by collateral of the issuing entity, but rather their earnings power. Junk Bonds Junk bonds are high yield debt instruments that are considered to be high risk. Junk bonds usually arise from corporations that have an excess amount of debt outstanding or are in a weak financial position. For these companies, the risk of default on interest payments is higher than the average.
Most junk bonds are corporate bonds.
The risk level of a corporations debt is rated by various companies that specialize in this field. Junk bond yields are essentially a function of the corporations health.