Junk Bond

A high-yield bond rated below investment grade (BB+ or lower by S&P, Ba1 or lower by Moody's) that offers higher interest payments to compensate for the elevated risk of default. Michael Milken at Drexel Burnham Lambert popularized junk bonds in the 1980s as a financing tool for leveraged buyouts and corporate raiders. The junk bond market has since matured into a mainstream asset class, and the spread between junk bond yields and Treasury yields is closely watched as an indicator of credit market stress.