When the Fed starts hiking rates, ‘GET OUT’ of this asset class
High-yield bonds, or “junk” bonds, are bonds issued by companies of relatively low credit quality. Because of the higher risks that come with lending to such companies, they have to offer higher yields than those of their investment-grade peers.
In this post-financial-crisis environment of low interest rates, more and more investors have moved increasing amounts of their investment capital into junk bonds in their desperate reach for more yield.
But with the prospects of higher rates not too far off, the big risk is that investors start dumping these bonds as higher quality bonds become more attractive and the risk profile of these companies increase.