Junk debt during a period of rising rates

Discussion in 'Fixed Income' started by FreeGoldRush, Aug 26, 2022.

  1. What is your opinion on the overall performance of debt rated BBB- or lower during a period of rising interest rates? I'm thinking about MAIN, ORCC and FSK. On the one hand they have adjustable rate debt. On the other hand they will almost certainly see more of it defaulting. How does it balance out? These three stocks are near their highs for the year. Why?
    murray t turtle likes this.
  2. Nobert


    This thread shows up both in main feed & off topic (?)
  3. %%
    ''Junk'' was a word coined by bond salespeople to help sell hi priced bonds + it seemed to work well. Well ,until M Milken made a fortune in it. Junk silver,LOL is not really junk.
    Default % on them + foreclosed homes except for 1930s + such %'s are better than one would think.
    I like ETfs, inverse + regular myself + bank interest, but latter pays less than hi yield or most bonds. Some muni bond funds are insured......... Hope this helps ; it helped me.
  4. MAIN, ORCC and FSK don't hold any of that. They hold the debt of mostly small to medium sized private companies. I'm looking for some opinions on how higher interest rates will impact default rates on that sort of debt since it is almost all adjustable.
    murray t turtle likes this.
  5. newwurldmn


    A slowdown could increase defaults. I don’t know about the other two, but FSK trades as a 20percent discount to its nav.
  6. So the question is: Do we expect the accelerating defaults to be more expensive than the revenue from the loans?
  7. xandman



  8. R1234


    These high yield investments are more sensitive to risk sentiment (the spread of junk yield over treasury yield) rather than just the prevailing interest rates in a vacuum.
  9. newwurldmn


    I dunno. But with fsk, you are paying 80 cents on their mark.