Since the Fed started hiking in March 2022, default rates have been moving higher, and every day there are companies that cannot get a new loan or refinance an existing loan.
This is how monetary policy works. A higher cost of capital makes it harder for firms to get financing.
With the strong uptrend in defaults over the past six months, and the Fed keeping interest rates at elevated levels, the HY default rate could reach 6% by the end of 2023, see chart below.
The bottom line is that a default cycle has started, and markets are not paying attention.
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