Which sector primarily utilizes high yield bonds and leveraged loans?

High yield bonds and leveraged loans are primarily utilized by the leveraged finance divisions of investment banks. This sector is specifically focused on financing companies with higher levels of debt relative to their earnings, allowing for the provision of capital to firms that may not qualify for traditional loans due to their risk profiles.

The leveraged finance divisions structure deals to provide funds for mergers and acquisitions, recapitalizations, or other corporate purposes, often working with companies that have lower credit ratings. Because these entities are often seen as higher risk, they offer higher yields to attract investors, hence the term 'high yield' bonds. Leveraged loans are typically secured loans provided to these companies as well.

This sector is highly specialized and tailored towards understanding the complexities of leveraged buyouts and other forms of capital raising for riskier enterprises, making it distinct from other financial avenues like equity financing, which involves raising capital through selling shares, or retail financing, which relates to individual consumer borrowing. Additionally, government financing does not encompass the high yield market, as it typically involves sovereign debt which is considered lower risk compared to the high yield market.