Junk Bonds and the Democratization of Risk

Prosperity Pulse Decoding Financial Frequencies · Oct 2, 2025 · 9m

Before the 1980s, corporate bonds were issued primarily by established companies with investment-grade credit ratings. Michael Milken's innovation of junk bonds—high-yield bonds issued by companies with lower credit ratings—opened capital markets to smaller and riskier companies. This episode traces how junk bonds evolved from a niche market into a major source of corporate financing, examining the mechanics of high-yield bond issuance and the role of bond rating agencies in assessing credit risk. We analyze how junk bonds enabled leveraged buyouts and corporate restructuring by providing the…