IN THE 1970s the junk-bond market was a dark underworld. It was the home of “fallen angels”, the bonds of investment-grade firms that had gone to seed. Most investors were too genteel to hold them. So they traded at hefty discounts to face value. Then Michael Milken, a junk-bond guru, came along with a new gospel. A portfolio of high-yield junk was a better bet than one of supposedly safer bonds. After all, an A-rated bond can only go in one direction—down.
The corporate-bond class system is still in place. Many types of mutual fund are barred from holding non-investment grade (ie, junk) bonds. But junk is no longer a stunted and shameful offspring. The high-yield market in America is now worth $ 1.2trn. And investment-grade bonds have also come down in the world. Around half are rated BBB, a notch above junk. Issuers are slumming it for a reason. A low rating is the price they pay for loading up on cheap debt.
A world with less snobbery of any kind is a…
