High yield ETFs and passives may struggle in new phase of the credit cycle

End of 146 month cycle

The pre-pandemic economic cycle in the US was the longest since records began. Lasting 146 months from December 2007 until February 2020 , it seemed like the bull market would never end – until it was brought to a shuddering halt by the onset of Covid-19.

Although the pandemic certainly ended one economic cycle and began another, the Covid-inspired downturn was relatively brief. In the wake of the economic downturn, massive monetary stimulus and fiscal bailouts muted the credit cycle and limited the number of defaults. Within two months, the US economy was expanding and the cycle began again. Even though this current cycle is barely two years old, we nevertheless see storm clouds on the horizon. Inflation continues to run hot. To fight it, the Federal Reserve is committing to hiking interest rates, which is usually enough to end most econ...