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What increases the risk of default on high yield bonds when interest rates rise?

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    What increases the risk of default on high yield bonds when interest rates rise?

    (When interest rates rise, we all know that Math shows that the value of a bond will drop, but that's not my question.)

    Intuition says that there's an indirect risk, in that rising rates might hurt their business, thus increasing the likelihood of bankruptcy.

    Any other factors which increase the risk of defaults on existing bonds?

    (The purpose of the question is that I'm contemplating what happens -- besides the aforementioned "math" drop in value -- to existing bonds.)

    #2
    I don’t think rising interest rates are as big a factor as rising inflation. If rates go up, it makes it more expensive to refinance or acquire more debt. So if a company is using debt to finance growth, they will have a tougher go of it in a rising rate environment. Then there are the companies that are using debt to cover their base with no growth prospects. They are going to go under anyway but rising rates will accelerate that.

    Rising inflation with rising rates is a nasty beast. You have the above scenarios plus increased costs. So your expenses are going up and your cost to finance is going up. A lot more companies will not survive that scenario.

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      #3
      Cost of everything when people also pay more for homes and CC. Our economy is built on consumer speading.
      LivingAlmostLarge Blog

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