WHY DOES BOND DOWNGRADES REQUIRE DIVESTURES BY PENSION FUNDS AND INSURANCE COMPANIES

The issuer of a security must ensure that its securities are owned by €œqualified institutional buyers (QIBs), which are defined as institutions that have $100 million or more in assets under management Furthermore, the issuer must ensure that at least half of the securities are held by QIBs https://www.investopedia.com/terms/q/qib.asp While a pension fund and insurance companies are not QIBs, they are not prohibited from owning the bonds However, if the issuer does not have at least 50% of its bonds owned by QIBs, it risks the downgrade of the bonds by the rating agency When pension funds buy bonds to rebalance their portfolio yields drop and likewise when they sell bonds yields climb. Falling yields bring in investors buying growth stock chasing profits. Pension funds hold about 125 billion dollars of bonds. https://www.cnbc.com/amp/2021/03/23/pension-funds-have-to-buy-bonds-to-rebalance-portfolios-and-that-might-be-good-for-stocks.html WHAT ARE THE BENEFITS OF PENSION FUNDS AND INSURANCE COMPANIES OWNING BONDS? Pension funds and insurance companies are motivated to take on the risk inherent in bond investments because their clients€™ financial needs are best served by investments that are a stable, reliable, and predictable source of income By investing in bonds, pension funds and insurance companies are able to provide their clients with a predictable stream of income In addition, pension funds and insurance companies are more able to stomach the risk of bond investments because they typically have a long-term investment horizon, which allows them to weather short-term fluctuations in the value of their investment in bonds Furthermore, because they are non-profit entities, they are not driven to maximize their profits Pension funds and insurance companies are better positioned than individual investors to purchase bonds that are rated below investment grade This is because these investors are able to purchase these bonds through the pooled investment funds that they manage These pooled invest