1. Securities rated as sub-investment paper by an investment advisory service, and thus an unsuitable investment for a bank investment portfolio or trust department. Speculative securities are rated by Standard & Poor's as grade BB or lower, and by Moody's Investors Service as Ba or lower. See also Junk Bond.
2. Investment security subject to loss of interest or principal, or both. Banking regulators have discouraged investing in certain types of derivative mortgage-backed securities, unless these are used as a hedging device to limit interest rate risk. These include Stripped Mortgage-Backed Securities-such as Interest Only (IO) Strips and Principal Only (Po) Strips-and also trading in When Issued securities, that is, buying a security in the interim between the announcement date and the offering date, in the hope of making a quick profit.
