Although high yield bond ETFs (JNK) have lagged higher rated investment grade debt, the underperformance is far from bear market territory. JNK has edged out a 1.63% yearly gain. Will the possibility of higher interest rates rattle the high yield bond market?
Last year, nearly 80% of newly issued corporate debt was speculative rated (BB+ or lower) and Standard & Poor’s foresees big problems ahead.
“Despite the heightened risks associated with speculative-trade issuers, these borrowers have had little trouble attracting lenders in the U.S. due to persistently lower interest rates, said David Tesher, a S&P credit analyst. “We forecast a possible tightening of market access for these prolific issuers in the third and fourth quarters of 2015, as lenders become less yield-hungry and more selective about extending credit.”