An Index of the Yields of Junk Bonds, 1910–1955

Abstract

We present a new monthly index of the yields on junk bonds (high risk, high yield bonds) for the period 1910–1955. This index supplements the indexes of government bond yields, and Aaa and Baa corporate bond yields economic historians have relied on previously to describe the long-term risk spectrum. First, we describe our sources and methods. Then we show that our junk bond index contains information that is not in the closest alternative, and suggest some ways that the junk bond index could be used to enrich our understanding of the turbulent middle years of the twentieth century.

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“…Such an approach results in the firm taking on a high risk strategy that could result in rapid rise in equity prices but also the potential to cause firm failure if such action is funded by leverage. Further evidence of highrisk strategies have been sourced in the use of junk bonds by companies seeking substantial rewards in rapid, with evidence provided of an increasing probability of default over a substantial period of time (Moeller and Molina [2003]; Basile et al [2017]), and substantial exposure to time-varying liquidity risk (Acharya et al [2013]).…”