Here is a very interesting article about Michael Milken and junk bonds published in November 1990.
Note the comment about the quality of junk bonds issued in the early 1980s being superior to those issued later.
https://www.nytimes.com/1990/11/22/busi ... -junk.html
Vanguard High Yield was launched slightly ahead of the period associated with Michael Milken and Drexel Burnham Lambert. One might speculate that Vanguard initially invested in a mixture of fallen angels, lower investment grade credits, and perhaps some higher quality credits for liquidity. It's unfortunate that early annual reports are not available as it would be very interesting to see if Vanguard purchased any of the Drexel sponsored junk bonds. They could have purchased bonds as new issues or in the secondary market after having done a detailed analysis in either case. The article I referenced earlier mentioned that the default rate in the 1980s was only slightly higher than 2%.
"A study by Barrie A. Wigmore, a limited partner of Goldman, Sachs & Company, found the quality of junk bonds issued in the early 1980's was vastly superior to those issued later."
"Not surprisingly, it is the later bonds that have most often defaulted, and those who bought such bonds in recent years generally have suffered significant losses in the collapse of the junk bond market, while bonds issued earlier have generally provided profits for buyers."
"When Mr. Milken first entered the securities business, in the 1970's, junk bonds were relegated to an obscure part of the financial community. Known as "fallen angels," most of these securities were bonds issued by companies that once had good credit standing, but whose credit had deteriorated. Many investors automatically sold bonds that ran into such problems, driving them down to prices that Mr. Milken rightly argued more than offset the increased risk. He developed a following by buying and trading such bonds."
"The business grew into underwriting and selling junk bonds for companies that did not qualify as investment-grade issuers. Buyers of the bonds generally prospered, more and more money became available for such investments, and credit standards started to deteriorate."