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Beginning in Yahoo!'s Bonds category, we were only a hop, skip, and a click away from a definition of junk bond. We selected Bonds Online and, once there, found a Glossary in the Investor Basics section. We wanted to start with a working definition of bond: A certificate which is evidence of a debt in which the issuer promises to repay a specific amount of money to the bondholder, plus a certain amount of interest, within a fixed period of time. We didn't find an entry for junk bond, so we clicked on a different link, Bond
Professor's Glossary. There we learned that a junk bond is: A bond rated lower than Baa/BBB. Also called a high yield bond. Bonds with credit ratings below Baa/BBB are considered speculative compared with investment grade bonds. The term investment grade was cross-referenced. It's a designation used by ratings agencies such as Moody's Investors Service, Fitch Investors Servic, or Standard & Poors for bonds which have a high probability of being paid. In contrast, we learned from a link to Investopedia.com, junk bonds are riskier investments but typically offer interest rates three or four percentage
points higher than safer government-issued bonds. The IFCI Risk Watch site, a resource for financial risk management, taught us about fallen angels, bonds whose ratings have fallen, and rising stars, speculative offerings whose ratings have been upgraded as a result of improvement in the issuer's credit quality. And speaking of fallen angels, it's hard to do a search on "junk bond" and not turn up a reference to Michael Milken, an American financial executive who earned the nickname "junk bond king" for his audacious 1980s strategy
of financing corporate takeovers with high-yield junk bonds. He was able to amass great wealth both for himself and for his employer, Drexel Burnham Lambert, Inc., but was indicted in 1989 for violations of federal securities and racketeering laws. Milken served two years in prison, and is barred for life from the securities business.
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