Abstract
Using the Merrill Lynch daily junk bond index, we re-examine and extend previous junk bond return results. We include the effect of business cycles on junk and investment-grade bonds, the sensitivity of junk bond returns to economic activity and/or interest rates, and sample periods that allow us to investigate periods of reduced junk bond liquidity. Daily data confirm the same curious return behavior identified in studies using monthly returns. However, we reveal for the first time that junk bond returns track the movement of interest rates during economically good times but track stock returns during bad times.