Why is the US junk bond market resilient despite concerns about higher interest rates?

The resilience of the US junk bond market, despite worries about elevated interest rates and an economic downturn, can be attributed to several factors. One key factor is the scarcity of supply due to limited new borrowing, as companies took advantage of low interest rates during the height of the Covid-19 crisis to push out payment dates and refinance existing debt. Additionally, a flurry of ratings upgrades has supported prices for existing debt, contributing to the relative strength of the market.

Moreover, the slight increase in junk-rated issuance this year has primarily focused on refinancing rather than adding new debt. The combination of these factors, along with a stronger-than-anticipated jobs market and support from rising Treasury yields, has helped stabilize junk bond yields and tighten spreads. However, some analysts expect the high-yield market to eventually reflect the macroeconomic reality, particularly as earnings growth slows down and interest expenses rise.

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