Game Over For High Yield Debt


“Oh, that clock! Old killjoy. I hear you”
- Cinderella

Exceptionally low interest rates, given enough time, can cause investors to do some pretty silly things. They helped fuel the housing bubble in the United States, as cheap and plentiful credit turned what started out as an increase in affordability for many families into a crazed speculative boom. We know how that story ended.

Since the collapse of the housing market and the resulting financial crisis, interest rates have again worked their “magic”. Investors have been given a stark choice: Earn zero in nominal terms and watch inflation slowly eat away at their savings, or take a meaningful amount of risk in the hopes of generating at least some return.

Not surprisingly, over the past several years investors have bid up asset class after asset class, starting with longer duration government bonds (e.g. 10 yrs), followed by investment grade corporate

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