What does junk status mean

In the financial world there are many instruments like
bonds, debentures among many other where the seller promises to pay the buyer a constant
return which is defined when the instrument is sold.

Based
on the ability of the seller to honor the payments due every year, financial rating
agencies like Moody’s, Standard and Poor’s give these instruments a rating. The system
of rating varies but in general the highest rating is given when the financial ability
of the seller is very strong and the chance of defaults is
negligible.

Sellers who do have a very sound financial
status tend to issue instruments that offer higher returns. This is done to compensate
for the fact that there may be defaults based on the prevailing financial conditions.
These instruments are called speculative or high yield. And in terms of the ratings they
have been given are placed in the junk status.