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Towards a History of the Junk Bond Market, 1910-1955

Peter F. Basile, Sung Won Kang, John Landon-Lane, Hugh Rockoff

NBER Working Paper No. 21559
Issued in September 2015
NBER Program(s):Development of the American Economy

We present a new monthly index of the yield on junk (high yield) bonds from 1910-1955. We then use the index to reexamine some of the main debates about the financial history of the interwar years. A close look at junk bond yields: (1) strengthens the view that the decline in lending standards in the late 1920s was modest at best: (2) casts doubt on the view that the banking crisis that began in 1930 disrupted financial markets because banks liquidated their holdings of risky bonds; (3) strengthens the view that the cost of capital rose substantially in the early 1930s and remained high for the rest of the decade; (4) casts doubt on the view that financial markets entered a liquidity trap in the second half of the 1930s; and (5) strengthens the case for believing that junk bond yields contain some information useful for making economic forecasts.

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Document Object Identifier (DOI): 10.3386/w21559

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