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New York. Jim Casey remembers the fast times when Michael R. Milken ruled Wall Street as the billionaire king of junk bonds.

But now, even those heady days of the 1980s, when Milken played kingmaker and rainmaker in the great takeover wars of that era, seem a little tame.

The market for high-yield securities, as junk bonds are more politely known in the business, is booming as never before.

And Casey, one of today’s junk-bond kings, is in the midst of a run unlike anything Milken saw from his trading desk in Beverly Hills.

Like many blue-chip corporations, companies with less-than-sterling credit are rushing to sell bonds and take advantage of low interest rates.

In the first nine months of this year, a record-breaking $275 billion of junk bonds have been issued worldwide, up from $163 billion during the same period last year, according to the financial data provider, Dealogic.

While no one foresees a junk-bond bust on the Drexel scale, the explosive growth of the market for risky corporate bonds has some people worrying.

Interest rates have fallen so far — the yield on two-year US Treasury securities sank to a record low of 0.36 percent on Thursday — that investors are turning to riskier and riskier securities for relatively high yields.

The typical junk bond pays an annual rate of 7.5 percent.

Wall Street is happy to oblige. As one veteran high-yield banker put it: “You need to put in the dish what the dog wants to eat.”

A similar serving of low rates and high risk has intoxicated Wall Street before.

After the dot-com bubble of the 1990s and the housing and credit bubble of the 2000s, analysts worry that investors and bond underwriters are getting careless again.

That is particularly true given the weak economy, which is straining many marginal companies, including some that are selling junk bonds.

“We’re starting to see the market get ahead of itself,” said Diane Vazza, a managing director at Standard & Poor’s.

She says borrowers are more able to raise money on easy terms that recall the frothy days before the 2008 financial crisis.

In the 1980s, junk bonds were often used to finance corporate takeovers. Today, most companies are selling them to refinance existing debt at lower rates.

Others are selling bonds to pay dividends to private equity firms that acquired the companies before the financial collapse.

“These deals are getting done more easily than they should, given that the economy is not on solid ground,” Vazza said.

Junk-bond veterans like Casey insist Wall Street is being careful this time. Defaults on junk bonds are the lowest ever, he said, and about 75 percent of the deals are aimed at refinancing, rather than taking on additional debt.

Drexel’s near monopoly is long gone and there is now a fierce struggle for market share.

Unlike investment banking or advising on mergers and acquisitions, where white-shoe firms like Goldman Sachs or Morgan Stanley have first call on business with more traditional clients, a few hundredths of a percentage point in underwriting fees can make all the difference in securing a deal.

As in any street fight, there is plenty of trash talk.

As the gossip goes, Bank of America is cutting fees to gain business and JPMorgan is bullying clients and threatening to pull back on other loans if they go elsewhere for junk-bond offerings.

And Citigroup is supposedly reeling from deep staff cuts that came after the bank’s broader problems in recent years.

All three banking giants insist the chatter is baseless.

Whatever the case, BofA surprised the competition earlier this year when it unseated JPMorgan, which had been the top global underwriter of high-yield debt since 2005.

In the first nine months of the year, BofA led $29.61 billion worth of high-yield offerings globally.
 

The New York Times