junk bond


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Related to junk bond: Investment grade bond

junk bond,

a bondbond,
in finance, usually a formal certificate of indebtedness issued in writing by governments or business corporations in return for loans. It bears interest and promises to pay a certain sum of money to the holder after a definite period, usually 10 to 20 years.
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 that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. Junk bonds became a common means for raising business capital in the 1980s, when they were used to help finance the purchase of companies, especially by leveraged buyoutsleveraged buyout,
the takeover of a company, financed by borrowed funds. Often, the target company's assets are used as security for the loans acquired to finance the purchase.
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; the sale of junk bonds continued to be used in the 1990s to generate capital. See also Milken, MichaelMilken, Michael Robert
, 1946–, American financial executive, b. Van Nuys, Calif. Nicknamed the "junk bond king," he was an executive at Drexel Burnham Lambert, Inc., where he transformed corporate takeovers and financing by the use of high-yield junk bonds.
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References in periodicals archive ?
When the regression is specified with the interaction of junk bonds and life and annuity reserves, the relationship again is significantly negative.
Best suited to investors who tolerate risk and hold long term, junk bonds should constitute just a portion of an overall bond portfolio.
Last month, however, the net flow of money into junk bond funds slowed dramatically, as small investors increasingly concluded that stock funds offer better profit opportunities.
So far this year, the strategy has worked, with the average junk bond fund registering a 34 percent total return.
For example, in calculating the default rates five years after issuance of all B-rated bonds, I found the cumulative mortality on default through 1988 for this dominant junk bond category to have been 11.
While disruptions in global markets in 1998 raised risk premiums on junk bonds and bank loans and threatened a seizing-up in financial markets, ultimately they did not derail the flow of credit, especially to smaller businesses.
Instead, "[i]n the junk bond files that we have examined," wrote Professors Alan Shapiro and Mark Weinstein of the University of Southern California in a study made for San Francisco, "the only broker dealt with is Drexel Burnham Lambert"
But the last decade saw an explosion of new, complex techniques and security-like investments such as options, futures, zero-coupon bonds, asset-backed securities and junk bonds.
At the same time, the health of the junk bond market appears to be an emerging issue as 51% of respondents expressed concern over the current state of junk bonds.
As the bond prices and yields move in opposite directions, the junk bond investors reaped handsome profits during the past few years.
That's troublesome since the stock market often moves in sympathy with the junk bond market because rising borrowing costs crimp corporate profits.
Junk bonds, meanwhile, have boasted yields twice that figure or greater.