The junk-bond market may be a bit frothy at the moment, but the real risk for high-yield paper is not a quick uptick in defaults, says Fitch, but instead that interest rates in general move higher. Interest rate volatility has been dormant thus far this year, but Fitch - looking back almost exactly one year - reminds about how quickly it can return.
As for credit: "Fitch recognizes the currently high issuance volumes and historically low yields in the leveraged finance space. However, in the view of Fitch’s Corporates team, we do not see a great deal of breakdown in credit discipline despite diminishing returns." The team also notes that while deal volume has picked up, it remains smaller than that of 2006-07 LBO boom, and the size, volume, and quality of today's transactions are "collectively less risky" than those of the previous cycle.