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Should high yield investors worry about the Fed? 

August 10, 2015

James Mitchell, Investment Week

We are just a few weeks away from a seminal moment, with the Federal Reserve looking likely to hike interest rates for the first time since 2006. 

There are two key risk factors to evaluate when assessing the prospects for the high yield market: credit risk and interest rate risk

The last hike in mid-2006 marked the end of a tightening cycle which started in 2004, and saw rates gradually rise from 1% to 5.25%.

There is much debate as to what this upcoming hiking cycle will bring to markets. Back in 2013, when the Fed announced it would be tapering its bond purchases – a precursor to hiking rates – the markets reacted badly. 

In this so called 'taper-tantrum', the yield in the US high yield market jumped from 5% in early May 2013 to 7% in late-June. However, the market did recover, moving back down to a 5% yield over the subsequent 12 months. 

Read more: Investment Week

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