An economic paradox is playing out right before our eyes. For well over a year now, restaurants, hotels and other service-sector businesses have either had to shut their doors or suffer drastically reduced revenues due to rolling lockdowns. Yet when we pass by, say, a large chain hotel the lights still appear to be on. Unless we assume that these businesses have discovered a way to turn lead into gold, we may wonder where the money is coming from.

To answer that question, we must dive deep into the financial markets. In a dark corner of these markets, we find an asset class known as “junk bonds.” Junk bonds—sometimes politely referred to as “high yield bonds”—typically have very high interest rates and low credit ratings. What this means is that the companies that issue the bonds are seen by investors as having a high chance of going bankrupt, so the companies pay very high rates of interest to borrow money. The junk bond market…

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