Higher Rates Cast Shadow Over Junk Debt Market

The strength of the US labor market increases the likelihood of more Fed rate hikes, which is negative for corporate America's $425 billion of junk debt due before 2025.

Higher borrowing costs could cut into profits and increase default risk. Rates staying higher for longer may cause something to break in financial markets that spills into the economy.

The average yield on the Bloomberg Global High Yield index hit 9.26% this week, the highest since November 2021, making it challenging for issuers to refinance debt.

A planned $305 million European leveraged loan portfolio sale was shelved due to economic uncertainty and higher yields.

Private credit funds are providing financing for leveraged buyouts, but investors are questioning if the funds deserve their high profits from rising rates.