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junk bond
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junk bond

Fixed-interest loan paying an above average level of interest but with a corresponding above-average level of risk. Junk bonds became popular in the USA during the 1980s economic boom.

Pioneered by US-born bond trader Michael Milken, they were commonly used to raise capital quickly, typically to finance takeovers to be paid for by the sale of assets once the company was acquired. The problem with this strategy was that, following the takeover, the resulting company was so highly geared that its debt repayments eroded any potential profits.



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? Mentioned in ? References in periodicals archive
 
High-yield bonds, better known as junk bonds because of their low credit rating and low sensitivity to interest rates, were added, with a smattering of mutual funds that invest in bonds overseas.
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Ten days later, there followed another shocking revelation: Credit Suisse First Boston had underwritten more junk bonds in 2003 than in 2002, but made less profit from the business.
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Junk bonds, by paying investors a higher rate of return in recompense for assuming a higher level of risk, provide an effective means of bypassing traditional financing channels.
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