When energy and mining issues are removed from the equation, the high-yield default considerably improves.
“Removing energy and metals/mining from the index, the remainder of the high yield universe is expected to finish 2016 with a 1.5% default rate, which is below Fitch’s non-recessionary average of 2.1%,” Barron’s reports, citing Fitch.
While junk bonds were typically better off during a rising rate environment, speculative-grade debt may experience greater volatility this time around. Historically, higher-yielding junk bonds helped provide a bigger cushion to absorb the negative effects of higher rates, and the riskier debt tends to do better in an expanding economy where the central bank would feel it safe to raise rates. [The Many Faces of High-Yield Bond ETFs]
iShares iBoxx $ High Yield Corporate Bond ETF
Tom Lydon’s clients own shares of HYG and JNK.