k_marro_risk

Multiple HY fund managers (with an interest to promote their HY fund) have publicly stated that rising interest rate during economic growth is healthy for high-yield sector, because the fundamental risk in the HY sector is default risk. Improving economy means decreasing hazard rate.

However, higher interest rate means higher yield across the the credit spectrum. If you bought a riskfree bond + a junk bond at a low interest time, then both will likely depreciate due to higher yield. In that sense, no bond is free of interest rate risk. If a HY fund has a relatively short duration (like 5Y) then it’s less sensitive to this risk, compared to a 30Y government bond.

By the way, the global HY sector is 80% in the US. So most of the discussions are US-centric.