Faulty Hedges in Junk Loans Foil Rate Protection: Credit Markets
This article is for subscribers only.
Ashish Shah, who manages company-debt investments for a living, has a message for individuals who’ve poured $70.7 billion into junk-rated loans since 2012: You’ll probably be disappointed.
Below-investment grade loans have attracted new cash for a record 94 weeks by promising interest payments that will float higher along with benchmark rates. The catch: More than 85 percent of the debt won’t actually do that until the three-month London interbank offered rate, or Libor, more than quadruples to exceed 1 percent, Morgan Stanley data show.