Junk-rated companies have ‘meaningful exposure’ to Fed rate hikes, with one part ‘the root cause” of vulnerability, warns Deutsche Bank

Junk-rated companies in the U.S. have “meaningful exposure” to interest rate hikes by the Federal Reserve, raising concerns over defaults as a potential recession looms, according to Jim Reid, head of thematic research at Deutsche Bank.

In an emailed note Tuesday, Reid looked at companies’ exposure to floating-rate debt. “While the overall US and EU corporate exposure is low, junk-rated US & European corporates have substantially higher exposure,” he wrote. Companies with a heavy debt load risk having a tougher time meeting their debt obligations in an economic downturn.

That is a tautology.

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