Revisiting The High Yield Bond Market: Mature But Never Dull

Ten years ago the author of this article wrote a piece for this journal reviewing the history of the “junk” bond market from its start in the mid‐1970s through the collapse of the leveraged restructuring movement at the end of the 1980s. In the summer of 1990, the high yield market was at a critical point in its development. With defaults high and still rising, the yield spreads over Treasuries of junk bonds had jumped to over 700 basis points and the new issue market had all but dried up. Drexel Burnham Lambert had recently filed for Chapter 11, and Michael Milken had been indicted. At that time, when many market observers were pronouncing the junk bond market “finished,” the author of this article said that the market performed a valuable economic function and, despite investor losses, would weather the crisis. In describing the remarkable recovery of the high yield market in 1990s, this article notes some important changes in the market. And, although there are now troubling similarities (including rising default rates and spreads) to conditions in the early ‘90, there are also important differences that are likely to make the start of this decade a better one for investors.