I just had a meeting with a fund manager for a prominent group of high-yield (junk) bond funds and he was optimistic about the future, even with higher interest rates approaching. These funds yield 8+%; low by historical standards, but high in today's world of low interest rates. The yield spread over the 10-year Treasury bond is about 450 basis points, again low by historical standards.
Junk bond funds came through the financial meltdown in good shape because they primarily invest in corporate borrowings. That collapse was caused by investments in risky mortgages, not corporate debt. Defaults are a major expense for junk bond funds and default rates have been low. He said defaults are running at 1%. I think his numbers are too low. Bloomberg recently reported that defaults were running at 3%, the lowest level in years. Either way, defaults are very low.
Higher interest rates are coming,
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Melissa Rycroft Chloë Sevigny Janet Jackson Georgianna Robertson Reese Witherspoon
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