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The diffusion modeling approach is adopted as these bonds are issued by residents and denominated in the national currency; it will grow over time and diffuse among corporations. The key potential determinants of high-yield bond diffusion pattern are: -

In US, the pioneer-influencing factor along with the autonomous diffusion pattern was responsible for the growth of high-yield bond segment, thus the 'Bass Model', which considers both of these factors, is the most suitable model. In US, the development of this market has taken considerable time as the diffusion rate was very slow in the early stage and the market took some time to mature, as it was something new for the market to adopt.

On the other hand, for the Euro area 'Mansfield Logistic Diffusion Model' which considers only the autonomous speed of diffusion is considered to be the most appropriate diffusion model for the adoption of the high-yield bond market. The euro area the diffusion rate was significantly higher as it had a model to follow and also due to its more market based financial structure.

The macroeconomic factors affect significantly the development of the high-yield bond market.

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