With U.S. growth picking up and business confidence soaring, high-yield bond prices are holding steady even as the Federal Reserve has signaled it is leaning more aggressively on its path of interest-rate increases, the Wall Street Journal reported. Junk debt, which typically offers investors higher interest payments to make up for companies’ lower credit ratings, tends to suffer less than Treasurys or highly rated bonds when the Fed raises interest rates. With the Fed on track to raise short-term rates twice more in 2018, some investors are turning to high-yield bonds to cushion the blow to their portfolios. With larger interest payments buffering against Fed rate increases, and a stable stock market supporting the environment for riskier securities, “we’ve been buying into” junk bonds, said Matt Freund, co-chief investment officer and head of fixed-income strategies at Calamos Investments.
