Junk Investors Take Cover in Bonds as Loan Defaults Accelerate

Credit investors are favoring junk bonds over leveraged loans as defaults pile up in the latter.

As the economy slows and yields soar — hitting borrowers with floating rates hardest — some of the riskiest US companies won’t be able to repay their debt, according to Oaktree Capital Management LP. Leveraged loan defaults could hit 8.5% in the first quarter of 2024, compared to about 6% for high-yield bonds, UBS Group AG strategist Matthew Mish estimates.

Loans are generally perceived as safer as they sit at the top of a corporation’s capital stack. They’ve historically defaulted at a lower ...