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The development of the high-yield bond segment of the European countries was triggered by the launch of the 'euro'. Besides this, the euro area had large number of small and medium enterprises, which were in need of finance but lacked the size and earnings predictability to obtain investment-grade ratings. Firms also needed to come out of restrictive bank loans (banks played predominant role) and restructure themselves. The market of high-yield bond segment is steadily increasing over the last few years.

The pattern of development of the high-yield segment of corporate bond market in both US and Euro area can be understood with the help of the model called "Diffusion Model With Macroeconomic Variables".

where,
a represents the initial proportion of innovators or pioneer influence factor,
b is the proportion of imitators or the rate of diffusion,
n(t) is the number of adopters in time t,
N(t) is the total number of cumulative adopters at time t,
M(t) is the market potential at time t,
c is the market penetration ceiling which is a % of market potential,
d is for non-uniform influences and e is for heterogeneity in the adopter population,
X is a vector of macroeconomic variable relevant for the high-yield bond diffusion,
Beta the corresponding vector of parameters,
X(t) reflects the current and carry-over effects on the adoption pattern at time t.

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* Contributed by: -
Jayanta Das & Kartavya Soni,
ICFAI Business School, Hyderabad.