Higher costs of capital have pushed up default rates in high yield corporate credit since the Fed started raising rates in March 2022.
But since the Fed turned dovish five months ago, credit spreads have tightened and stock prices have rallied, which has reopened capital markets with more M&A activity and IPO activity.
As a result, the high yield default rate is now beginning to flatten out, see chart below.
In short, the negative effect of Fed hikes is being offset by the Fed pivot and the associated easing in financial conditions.
Source: FRB, Moody’s Analytics, Haver Analytics, Apollo Chief Economist
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