Default Rate Trends Following Periods of Monetary Accommodation
Speculation on the future of quantitative easing may keep volatility elevated during the fourth quarter, but fundamentals in the corporate credit market remain solid. With borrowers having locked in lower borrowing costs over the next few years and short-term rates expected to remain low at least until mid-2015, concerns that high-yield borrowers may not be able to meet their obligations are mostly muted for now. Data since 1986 shows that periods of monetary accommodation have typically been followed by prolonged periods of low default rates.
FEDERAL FUNDS TARGET RATE VS. 2-YEAR FORWARD HIGH YIELD DEFAULT RATE