Q: Hi Guys
will the default level not go through the roof on all these Corporate Bonds in the next few years when they have to re issue debt at much higher levels ? and wont a recession really contribute to high bankruptcies.
What kind of a correction in this ETF can we expect, something along the lines of 30 %, Algonquin Power was sure hit hard with higher floating rates.
Thanks Gord
The average duration of the fund is just less than four years. While any high-yield fund has recession/rate risk, shorter term maturities lessen the risk somewhat. In addition, the fund owns more than 1,000 different secuities, so the risk of a single company is very small. But, in a deep recession certainly some companies will run into trouble. Some of this is likely already priced in to bond prices, as investors were very worried about this last year. It becomes an 'expectations vs reality' situation. We would also note that, in a recession, interest rates are likely to fall, and this could be an offset to weaker corporate credit.