Debt, high-yield

The third phase of the European high-yield market s evolution appears to be following the US market s model, with an increased focus on higher qnality issuers, more investor-friendly debt structures, and expansion of the asset classes accessed by institutional investors. 

For illustrative purposes, it is worth considering the German experience of the 1990s in conjunction with the high-yield debt example mentioned previously. During this period, German institutional investors were seeking to diversify and increase their overall returns. This need... 

As with any commodity, supply and demand also play important roles in determining bond prices, and therefore their yields. A shortage of issues at a particular point in the curve— the result, perhaps, of an effort to reduce public-sector debt—depresses yields for that maturity. On the other hand, when interest rates decline— ahead of or during a recession, say—and new bonds are issued with increasingly lower coupons, the stock of outdated high-coupon bonds increases and can end up trading at a higher yield. 

Consider the example structure represented by FIGURE 15.5. An important feature is excess spread, reflecting the high yield on credit card debt. In addition, a financial guaranty is included as a form of credit enhancement given the low rate of recoveries and the absence of security on the collateral. Excess spread released from the trust can be shared with other series suffering interest shortfalls. 

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