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Types of Bonds

The High-Yield Bond Market

The high-yield bond market was relatively small until the 1970s, and former investment-grade companies whose credit had declined issued most high-yield bonds. Lower-grade bonds were not widely held in investment portfolios and most dealers did not handle these securities. In the 1970s, highly leveraged and start-up companies, which were unable to borrow from banks, began to raise money by offering high-yield bonds. During the 1980s, many high-yield bonds were used to finance speculative takeovers and mergers. Some still are. But today high-yield bonds are more commonly used to provide working capital for growing companies. As interest rates declined and the economy recovered, many issuers returned to the market to refinance old debt at lower rates and new issuance increased during the 1990s. Numerous broker-dealers and banks now participate in the high-yield market, which has become much more liquid, diverse and credible.High Yield Issuance 1997-2003

In 2003, $122.9 billion worth of new high-yield bonds was brought to market. By comparison, that was more than nine times the new-issue volume in 1990.


All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.