What type of debt is primarily associated with leveraged financing?

High-yield debt and leveraged loans are primarily associated with leveraged financing because these forms of debt are specifically designed to provide capital for companies that operate with a higher level of financial risk. Leveraged financing typically involves the use of debt to increase the potential return on investment, often for acquisitions or growth initiatives that are expected to generate significant earnings relative to the cost of debt.

High-yield debt, commonly referred to as "junk bonds," is issued by companies with lower credit ratings, which reflects a higher risk of default. Investors are incentivized to purchase these bonds due to the higher interest rates offered compared to investment-grade bonds. This aligns well with leveraged financing, as companies often take on additional debt to finance projects that may yield higher returns.

Leveraged loans are another critical component, typically secured by the borrower's assets and used by companies to fund operations, acquisitions, or refinancing of other debts. These loans are often extended to borrowers with a high level of existing debt, making them an essential tool in leveraged finance.

In contrast, the other options do not align with the characteristics of leveraged financing. Short-term government bonds are deemed low-risk and not typically associated with high returns or leveraged strategies. Corporate equity and exchange-traded funds pertain more to equity financing