What is scary to me is that most corporate bonds traded much lower than current levels in 2006 through 2008. Yes, it was a rising rate environment, but historically speaking it was still a low rate environment. What's happening now with bonds is surely a bubble, caused specifically by a historically low interest rate environment. Everyone is piling into an increasingly crowded bus and hoping that these conditions persist for many years. It seems to me that high-yield, and particularly long-dated high-yield, will quickly lose 10 to 15% of their principal value as soon as rates start up. It looks like a game of musical chairs and everyone assumes they will not lose a seat in the near future.The alternative is to go for short-duration A credits, in which case you make trinkets (typically 1% to 3%). It's fine for someone who is ultra-rich and wants to preserve capital, but it's not viable for someone who needs to make their money work.For my own case, I'm increasingly more attracted to distressed debt simply because I can measure risk and reward and compare them. With high-yield long-duration debt trading near its top, the risks are mostly hidden and the rewards are not great.
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