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How High Yield Will Fare in Rising Rates

Third Avenue Focused Credit Fund's Jeff Gary says high yield bonds and the fund should weather rising interest rates better than other fixed-income types and the premium on high yield versus Treasuries is extremely attractive now.

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Bridget Hughes: Well, I know high yield is not necessarily as sensitive to interest rates as certainly Treasuries or even high-grade corporates, but I know the level of interest rates currently is on a lot of people's minds. Can you talk about how the portfolio would respond to rising interest rates?

Jeff Gary: Sure. It's a very good question and a question we've gotten a lot from our investors. I would say that the last three weeks with the potential slowdown in the economy people are a little less concerned, but it is something you need to take into account. So there are couple factors that we tell investors that the end result is that high yield and this fund should have a lot less impact by rising interest rates.

Bridget B. Hughes does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.