U.S. High-Yield Bond Default Rate vs. the Federal Fund Target Rate
Despite a temporary spike in 2005, the U.S. high-yield bond default rate has, historically, tracked the federal funds target rate closely, with a lag of approximately two years. Given the Federal Reserve’s efforts to maintain a low interest rate environment for an extended period of time, high-yield default rates should remain depressed, which is supportive of credit spreads.
CREDIT DEFAULTS APPEAR LIKELY TO REMAIN LOW