Financial Markets:

Issuers, Purchasers, and Purposes of High Yield, Non-Investment Grade Bonds

GGD-88-55FS: Published: Feb 29, 1988. Publicly Released: Feb 29, 1988.

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In response to a legislative requirement, GAO provided information on high-yield, non-investment-grade bonds, focusing on the: (1) issuers and purchasers of such bonds; (2) reasons for issuing such bonds; and (3) extent of risk, in comparison to other kinds of investments, such bonds represent to federally insured institutions.

GAO found that: (1) the amount and value of the bonds increased significantly between 1982 and 1987, from 57 bonds, valued at $2.8 billion, to 193 bonds, valued at $31.3 billion; (2) companies in a wide variety of industries issued high-yield bonds; (3) mutual funds and insurance companies purchased about 30 percent of high-yield bonds, with pension funds, individuals, and thrift institutions purchasing between 7 and 10 percent; (4) federally insured thrift institutions owned about $11.1 billion in such bonds, representing about 0.9 percent of their total net assets; (5) 10 thrifts held about 78 percent of such bonds, representing 3 to 34 percent of their total net assets; (6) 5 of the 10 thrifts had varied investment policies and procedures and loss reserve amounts; (7) companies issued the bonds for general corporate purposes, debt retirement, and acquisition; and (8) high-yield bonds accounted for 22 percent of the total financing used for hostile corporate takeovers in 1985 and 1986.

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