It is often said that it takes at least a year for a change in interest rates to have their full effect on the economy. The Fed started raising interest rates in March 2022. How has the high yield market performed since then?
At the moment the picture is complex. It was expected that there would be a liquidity shortage in the market, that many companies would try to raise money, but investors could not provide any money and banks would not make financing possible either. For now, though, high yield buy/sell spreads are tight and healthier companies have been able to tap into the market. So market liquidity and trading are intact. There is supply and demand. And that suggests that we are currently in an environment in which investors are quite willing to take risks selectively.
Also read: Returns of more than four percent: why investors should still buy bonds now
The US Federal Reserve is giving the market some breathing space by raising interest rates don’t raise it any further?
This is currently not a motivation for their interest rate decisions. Basically, there are currently relatively few new issues of high-yield bonds and they are definitely being bought. The fact that the market is resilient is due to the fact that many companies financed themselves cheaply before the turnaround in interest rates. Good companies can arrange their financing flexibly. The market will now pay more attention to economic data, but will also be more selective in choosing which companies to invest in.