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Article: Junk Bonds
- Article from:
- Dictionary of American History
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JUNK BONDS
JUNK BONDS.
Michael Milken, the notorious investment banker of the 1980s, allegedly coined the term "junk bonds" to describe the portfolio of low-grade bonds owned by one of his early clients, Meshulam Riklis. Companies issue low-grade, also called "high-yield," bonds at high interest rates because of the associated high risk of nonpayment. Unlike investment-grade bonds, the low-grade variety is not backed by assets or cash-flow statements. Companies frequently issue these bonds as a way of borrowing money. An outside, third-party credit rating agency, such as Moody's Investors Service or Standard and Poor's Corporation, judges the creditworthiness of such companies and then ...