Junk Bond
Definition
A junk bond, formally a high-yield bond, is a bond rated below investment grade, meaning rating agencies judge the borrower more likely to default. To compensate, the bonds pay higher interest, which is why the market politely calls them high-yield.
In practice
Michael Milken’s insight was that a diversified portfolio of these bonds historically paid more than their defaults cost. Drexel Burnham turned that insight into the financing machine of the 1980s takeover wave, letting outsiders raise billions to bid for blue-chip companies.