Will Rate Cuts Revive Housing and Junk Debt in 2025?

Timing beats headlines: why this isn’t the same for housing and junk debt

Rate cuts make great headlines. But in Q4 2025, the calendar matters more than the press release. Housing and risky credit don’t move on the same clock, and if you trade them like they do, you’ll be early… which in this game usually just means wrong. Mortgages key off MBS yields, term premium, and where inflation expectations settle. High yield and loans move on base rates and spreads, fast. That 6-18 month lag we always mutter about on the desk? It’s not a cliché; it’s a budgeting tool.

Quick reality check on the plumbing. A 30‑year mortgage isn’t priced off fed funds. It’s a blend of current-coupon MBS yields, prepayment convexity, the 10‑year Treasury, and the term premium investors demand to hold duration when inflation is noisy. For context, the average 30‑year fixed mortgage rate peaked at 7.79% in October 2023 (Freddie Mac PMMS, 2023). It eased at points last year as inflation cooled, then chopped around this year as long-end yields swung. Even when the Fed hints at easing, if the term premium backs up 25-40 bps, mortgage rates can actually rise. We saw versions of that dynamic in late 2023 when the ACM term premium turned positive again after years near zero (NY Fed ACM model, 2023). I’m blanking if it was +40 bps by November or a touch lower, either way, the direction mattered more than the exact print.

Risky credit reacts on a tighter fuse. High yield and leveraged loans reprice in days or weeks off spread moves. If recession risk looks contained, spreads can compress fast after a cut. If not, spreads can widen even as the Fed eases, classic “bad cuts.” In 2020, spreads blew out past 1,000 bps before the policy backstop pulled them back (ICE BofA HY OAS, 2020). In 2024, we spent a lot of months near the 350-400 bps range while earnings held up (ICE BofA, 2024). Different tapes, different clocks.

And the curve this year? Messy. We’ve had weeks where the long end sold off while the front end priced more easing. Mortgage borrowers felt the long-end pain; CCC issuers felt the front-end relief, at least until earnings or default headlines pushed spread beta the other way. I’ve made that exact timing mistake, bought housing-sensitive equities on the first cut years ago, only to watch MBS hedging and a term premium pop keep mortgage rates sticky for another quarter. Not my finest trade.

What you’ll get from this section

• Why rate cuts arrive with lags, and why those lags aren’t the same for housing and credit.
• How mortgages hinge on MBS yields, term premium, and inflation expectations, not the fed funds print.
• When and why credit spreads can tighten quickly after a cut, and when they widen despite easing.
• How to time portfolios in late 2025 assuming a staggered reaction across assets, not a synchronized one.

Short version: in Q4 2025, sequence beats sentiment. Map the order, front end, spreads, then the long end, or you’ll cheer the right policy and own the wrong exposure.

One more thing, I get a little fired up about this because the gap between the Fed’s messaging and the actual mortgage quote your client gets is where careers are made. It’s not neat. It’s not linear. But if we respect the lag, 6 to 18 months is still a good rule of thumb, you can be early and right, which is kind of the whole point.

What actually moves mortgage payments (hint: it’s not just the Fed)

Everyone hears “rate cut” and expects their 30-year to magically drop 100 bps by Friday. Nope. The 30-year fixed you and your clients stare at every morning keys off mortgage-backed securities (MBS) yields plus a spread, not the fed funds print. MBS yields, in turn, reflect two things that don’t care about the press conference tone: inflation expectations and the term premium. For context, the New York Fed’s ACM 10-year term premium flipped positive in 2023 and hovered roughly in the 50-100 bps range through 2024, meaning part of the long rate is just compensation for holding duration risk. That piece doesn’t move 1:1 with the Fed, and sometimes it moves the “wrong” way when volatility is high.

The spread on top, the “primary-secondary” spread from MBS to the retail mortgage quote, breathes with prepayment risk, rate volatility, and plain old lender capacity. In 2019, that spread was ~170 bps. In 2023 it ballooned toward ~300 bps at points as the MOVE index spiked and pipelines thinned. It narrowed some last year, but it’s still fatter than pre‑pandemic norms. So a 100 bp Fed cut can morph into, say, only 40-60 bps on the 30‑year if MBS spreads widen or the term premium drifts up. Seen it a dozen times. You cut; the back end yawns, or even backs up, because volatility flares and servicers slap on more cushion.

Affordability, meanwhile, isn’t just a math problem on the rate line. It lives and dies on supply and wages. The lock‑in effect is real and it’s sticky. Redfin reported in 2024 that roughly 60% of outstanding U.S. mortgages carried rates below 4%, and about 88-90% were below 6% (2024 data). That cohort isn’t listing unless life forces the move. Net result: the resale market stays inventory‑constrained even if rates ease 50-75 bps later this year. I’ve personally watched more deals fall apart over “there’s nothing to buy” than over 25 bps on the quote. And I mean recently, like this summer…

Builders are the swing factor because they can manufacture supply and engineer payments. Rate buydowns (both temporary and permanent) are doing the heavy lifting. NAHB’s late‑2024 member surveys showed 60%+ of builders using incentives, with rate buydowns among the top tools. That’s how you bridge a $150-$300 monthly gap without waiting for the 10‑year to cooperate. On resales, you don’t have a sales office writing checks to Fannie, so concessions are thinner and inventory still tight.

On refis, small cuts rarely pencil without help. The breakeven is about points paid, expected tenure, and taxes. Quick back‑of‑the‑envelope: drop from 6.75% to 6.25% on a $400k loan saves ~0.5% on rate, about $130-$150/month before taxes/MI. Pay 1 point ($4,000) and your simple breakeven pushes ~27-30 months. If you think you’ll move in two years, that’s a no unless the lender eats fees or you snag a temporary buydown. And if you itemize less after 2017’s SALT/standard deduction changes, the tax offset is smaller, which stretches the breakeven.

• Bottom line: 30‑year rates follow MBS and term premium, not the dot plot.
• Fed cuts help, but spreads can widen when volatility pops, diluting the pass‑through.
• 2020-2021 low‑rate vintages keep move‑up supply locked, muting the impact of moderate rate declines.
• Builders can buy payments down; the resale market can’t conjure inventory.
• Refi math is case‑by‑case: points, time horizon, and tax treatment decide if it works.

In Q4 2025, cheer the easing if you want. But for mortgages, watch MBS spreads, the term premium, and inventory prints, because that’s where the payment really moves.

Risky debt 101: high yield, leveraged loans, and private credit in a cutting cycle

Risky credit behaves like a different species when the Fed eases, and I say that as someone who’s had more than a few late-night calls in 2008, 2016, 2020, pick your stress year. Leveraged loans reset fast. Coupons float off SOFR, so when base rates get cut, cash interest drops basically on the next 30-90 day reset, which gives issuers immediate breathing room even if revenues haven’t budged. A 25 bp cut usually means ~25 bp lower coupons within a quarter, simple, mechanical. The hard part is defaults: interest relief hits first, default relief shows up later because use is still the same and covenants (what’s left of them) don’t heal overnight.

High yield is a different animal. It’s fixed-rate, so prices move with both Treasury yields and credit spreads, and those can go in opposite directions during easing. If growth holds, the net effect is usually positive, lower risk-free rates plus steady or tighter spreads supports price gains. If growth cracks, spreads can blow wider and swamp the rate rally. Last year (2024), US HY option-adjusted spreads spent most of the year in a ~320-430 bps range, snug by historical standards, and that left less cushion when macro headlines got wobbly. Duration in broad HY sits around 4-5 years in recent vintages, so a 50 bp move in rates is meaningful, but it won’t bail you out if spreads gap 150 bps on an earnings wobble. Been there.

Private credit sits between those two, floating-rate like loans in many cases, tighter documents than most syndicated loan deals, but with way less liquidity. That last bit matters in Q4 when redemptions and year-end window dressing kick up. Policy easing doesn’t magically make a thin market thick. Sponsor quality and covenants carry the day. For context, private debt assets under management topped roughly $1.7 trillion in 2023 (various industry trackers put it in that neighborhood) and have kept growing this year, but scale doesn’t equal exit liquidity when the bid fades on a Friday afternoon. I’ve watched good sponsors pull rabbits out of hats; I’ve also seen tight docs used to kick the can a few quarters, helpful, not a cure.

Where this gets practical in 2025: leveraged loans feel the cut first via coupons; high yield feels it through price channels that depend on whether earnings hold up; private credit feels it in interest burden but still lives and dies by sponsor behavior and amendment math. And yes, it’s messy, because sometimes the first cut happens exactly when growth is slowing, which makes everyone ask whether tighter spreads are real or just beta.

• Loans: Floating-rate coupons reset within 1-3 months; a 25-50 bp policy cut usually passes through almost one-for-one to interest cost. Default rates tend to improve with a lag as interest coverage rebuilds.
• High yield: Prices respond to Treasuries and spreads. Net effect = rates down minus any spread widening. In 2024, HY spreads mostly sat near the low-4% handle; that’s supportive only if earnings don’t disappoint.
• Private credit: Sponsor and covenant quality are the whole story. Liquidity risk sticks around even in an easing cycle, no central bank can create a secondary market on command.
• Refi timing: Risky-debt refinancing waves typically start after the first credible cut when risk appetite returns and desks reopen, issuers don’t need zero, they need open windows and receptive buyers.

In this Q4 2025 chapter, cheer the rate relief for loans, price the two-handed nature of high yield, and don’t forget: private credit’s liquidity doesn’t improve just because the Fed nods. Windows reopen when growth feels okay and buyers feel brave, not when the press release hits.

What past cycles actually show (keep the years straight)

History doesn’t repeat, but it does hum the same tune. When people ask me “will rate cuts revive housing and risky debt?”, I always go back to the tape. The context around the cuts mattered more than the cuts themselves, every single time.

• 1995 mid‑cycle easing: After the 1994 tightening, the Fed trimmed the funds rate by 75 bps in 1995 (to 5.25% by December). Risk assets liked it. U.S. high‑yield option‑adjusted spreads narrowed toward the mid‑400s bps in 1995-1996, and the S&P 500 rose about 34% in 1995 (data for 1995). Growth stayed intact; earnings held up. Translation: when income and demand are fine, cuts grease the wheels.
• 2001-2003 recessionary cuts: The funds rate fell from 6.5% (early 2001) to 1% by mid‑2003. But high‑yield spreads first widened, blowing out past 1,000 bps in late 2002 around the Enron/WorldCom credit stress. Refinancing improved later as rates kept falling, mortgage refi activity surged in 2002-2003 (MBA Refi Index spiked in 2003), and lower coupons eventually let issuers term out debt. The order mattered: pain first, then relief.
• 2007-2008 credit crunch: The Fed cut from 5.25% (Sep 2007) to 0-0.25% by Dec 2008. Didn’t fix housing overnight. U.S. high‑yield spreads peaked near ~2,000 bps in late 2008, and speculative‑grade default rates jumped to around 14% in 2009 (Moody’s data for 2009). Case‑Shiller home prices fell roughly 27% peak‑to‑trough from 2006 to 2012. Rate relief couldn’t clear clogged credit plumbing, banks, securitization, and collateral values were the chokepoints.
• 2019 insurance cuts: The Fed cut three times (July, Sept, Oct) to 1.50%-1.75% by Oct 2019. That supported risk appetite: U.S. high‑yield issuance improved into early 2020. Then the pandemic hit. In March 2020, HY spreads sprinted toward ~1,000 bps, before the Fed’s extraordinary backstops (PMCCF/SMCCF announced March 23, 2020) reset the tape and opened windows. Full‑year 2020 U.S. HY issuance ended up near a record (~$435B, SIFMA/LSEG kind of neighborhood). Cuts helped, but the policy architecture, sorry, jargon, the emergency facilities, did the heavy lifting.

Small add: housing behaves differently than corporate credit. Lower mortgage rates can boost eligibility and demand, but if supply is frozen, affordability is stretched, or lending standards tighten, turnover stays muted. We saw that in 2008-2011 even with collapsing rates; and in 2019-2020, purchases paused despite cheap money until health and labor visibility returned.

And just to keep myself honest with a little humility: cycles rhyme, they don’t match bar‑for‑bar. The 1995 “soft landing” playbook worked because growth and profits were still okay. The 2001-2003 experience was slower because earnings and balance sheets needed time to heal. In 2008, the banking pipes were frozen. In 2020, the shock was exogenous and the policy response was, frankly, massive.

Where does that leave us in Q4 2025? Cuts that arrive while income growth is decent and banks are lending tend to compress spreads and reopen issuance windows. Cuts that arrive into deteriorating earnings or stressed collateral often see spreads widen first, sometimes a lot, before refinancing can pick up. If you want an oversimplified rule of thumb: rate cuts help the most when growth is stable and the plumbing isn’t clogged. If unemployment is around 4% and default rates are contained around, say, 3%-4%, HY usually breathes easier; if those drift higher, the rate relief gets “taxed” by wider spreads.

Takeaway: Rate cuts aren’t a magic wand. They work best when growth/income is stable and the banking/credit pipes are clear. If the pipes are gummed up, you can cut 100 bps and still watch housing and risky debt struggle to revive.

2025 reality check: housing affordability, supply, and who actually benefits if rates ease

Short version: affordability math is still tight in Q4 2025. The monthly payment is a three‑legged stool, rates, wages, and prices, and only one leg wobbling lower doesn’t fix a stool that’s already leaning. Thirty‑year mortgage quotes are still hovering around 7% give or take, which means even if we get another 50-75 bps of relief later this year, the real unlock needs more sellers. The people with 3% pandemic‑era mortgages aren’t eager to trade into a higher payment unless life forces it, new baby, job move, divorce, that stuff we don’t model well in spreadsheets.

On the numbers, we’re not starting from an easy place. The payment‑to‑income ratio for a median‑priced home sat around the high‑30s percent in 2024 (ICE Mortgage Monitor data), near the worst levels since the late 1980s. Wage growth did about 4% in 2024 on the Employment Cost Index, while prices kept drifting up mid‑single digits in a lot of markets. Rate cuts help, absolutely, but unless inventory rises, prices tend to adjust slower than buyers hope. That’s been my lived experience and, yep, it’s annoying.

Supply is still the choke point. Existing‑home months’ supply was typically in the 3-4 month range across 2024 (NAR), below the ~6 months that feels balanced. New construction remains the pressure valve: Redfin estimated new homes made up roughly one‑third of single‑family inventory in 2023 and stayed elevated into 2024, which is wild by historical standards. Builders are leaning into incentives, per NAHB surveys last year, a majority offered concessions, with permanent buydowns or 2‑1 buydowns that effectively mimic a 75-100 bp lower rate to the buyer. It’s not magic, but it moves a borderline deal into “okay, we can make this work.”

Will rate cuts alone fix affordability? Not without more listings. If we do see some payment relief, investors and cash buyers tend to step in first and fast. In 2024, all‑cash purchases were roughly 28-30% of existing sales (NAR), and investor share in many metros sat in the mid‑teens to low‑20s (various brokerage trackers like Redfin). When financing costs are volatile, that cohort sets a floor under certain Sun Belt and Midwest markets, Phoenix, Jacksonville, parts of Ohio, where cap rates can pencil with modest use. Sometimes I say “cap rate spread” and then realize, yeah, simpler: the rent minus expenses versus price still looks okay for them.

Credit side, the relief sequence is pretty mechanical. Floating‑rate borrowers feel it first, each 25 bps off SOFR cuts interest expense by about $250,000 per year per $100 million of debt. Then refinancing windows reopen in tiers: stronger issuers with cleaner collateral and maturities in 2026-2027 print first, weaker balance sheets wait (or pay up) until spreads calm down. That staggered reopening showed up last year too in HY and loans when the Fed paused, issuance came back, but quality led and CCCs lagged.

My take: If rates drift lower into year‑end but resale supply stays thin, affordability improves at the margin, not dramatically. Builders keep carrying the load with incentives, and cash/investor demand keeps a floor under select markets. The big unlock is still more sellers. Until move‑up owners budge, we’re chipping away, not breaking through.

• Affordability is rate × price × wage. One variable easing isn’t enough if the other two don’t cooperate.
• New construction is the pressure valve; incentives can feel like a 75-100 bp lower rate to buyers.
• Cash and investors gained share in 2024 (cash ~28-30% per NAR), supporting certain metros when mortgages are choppy.
• In risky credit, floating‑rate names benefit first; refi windows reopen for stronger issuers before weaker ones, especially into the 2026-2027 maturity wall.

Portfolio moves I’m making (and what I’d avoid)

Quick throat‑clear: not advice, just how I’m lining up my chips after too many cycles to count. Q4 is when I want optionality and a margin of safety. If rate cuts actually materialize later this year, I’d rather be paid while I wait, then lean into spread compression once the tape confirms it. And yes, I still keep dry powder; the best credit buys tend to show up on ugly days, not press‑release days.

• Cash/T‑bill ladder for liquidity. I’m keeping a rolling 1-6 month T‑bill ladder so I can respond to policy shifts without giving up carry. I roll maturities to stay near the front end; if the Fed signals a quicker path, my ladder resets fast. (I’ve learned the hard way not to chase yield at the back end before confirmation.)
• Agency MBS on weakness. When mortgages cheapen on volatility or convexity fear, I add to Agencies for income with explicit/semi‑explicit backing. I don’t pay up when vol spikes; I scale in on red days and let roll‑down and carry do the work. Re: housing, cash buyers took ~28-30% share in 2024 per NAR, which cushioned some markets, useful context if you’re modeling prepayment and turnover.
• High yield tilt: quality first. I favor higher‑quality BB/B over CCC into an uncertain growth path. I add on spread widening, trim on compression. Last year, CCCs lagged in primary while quality led, same playbook until the macro says otherwise. If growth looks okay and cuts are gradual, I’ll rotate a slice toward HY where duration actually helps instead of hurts.
• Loans for near‑term carry. If you think cuts are a slow drip, floating‑rate loans can keep the coupon competitive near term. I’m choosy on structures and sectors (tight docs get a pass). And I size with the expectation of mark‑to‑market surprises, because they happen right after you get comfortable.
• Private credit: pick your spots. Manager quality, underwriting discipline, and liquidity terms come first. I’d rather accept a lower target IRR with clean protections than stretch into style drift. Position sizes assume gates or slow NAVs. If anything, I underwrite to a heavier downgrade cycle into the 2026-2027 maturity wall.
• Mortgages for households. Run a refi breakeven worksheet now, not later. If a homebuilder is offering buydowns, compare the after‑tax effective rate to the market rate and your expected holding period; incentives often mimic a 75-100 bp lower rate out of pocket (we saw that dynamic a lot in 2024, and it’s still around this year).
• Tax placement matters. I hold taxable credit (HY, loans, private credit funds throwing off ordinary income) in tax‑deferred accounts where I can. In taxable accounts for high earners, I use munis when the tax‑equivalent yield compares well. Sounds boring; saves basis points, net is what pays your bills.

What I’m avoiding right now: overpaying for beta when volatility is elevated, stretching into CCCs just for headline yield, and locking into long duration without a clearer signal on the path of cuts. If the market gifts me wider spreads on a messy payrolls Friday, I’ll take the other side and add. If spreads grind tighter into year‑end on light liquidity, I’ll clip carry and quietly trim. Simple, a bit dull, and it works more often than it should.

Your 30‑minute challenge: pressure-test your plan before the next policy move

Your 30‑minute challenge: pressure‑test your plan before the next policy move

One ask before you scroll: pull your numbers. This takes half an hour and saves you the email to your future self that starts with “should’ve.” Start with debts and reset dates. List your mortgage rate, payment, remaining balance, and how long you actually expect to stay put. Add every adjustable or floating item: ARMs, HELOCs, small‑business loans, even that margin loan you swore you’d pay off. Note the month they reset in the next 12-24 months. Why? Because resets sneak up. The share of new ARMs picked up in 2022-2023 and, while it cooled last year, the stock still exists. Quick context: the 30‑year fixed peaked at 7.79% in Oct 2023 (Freddie Mac PMMS), and incentives from homebuilders in 2024 often mimicked a 75-100 bp lower rate out of pocket, still true in pockets this year.

Now, do a simple refi breakeven. Old rate vs. current quote; payment delta; total fees and taxes in dollars. Breakeven months = total costs divided by monthly savings. Sounds basic because it is. But use the real all‑in number: appraisal, title, transfer taxes, points. Not sure what to plug? Last year’s ClosingCorp data showed refi closing costs commonly landed in the low‑to‑mid thousands depending on state, call it a placeholder until you get your actual Good Faith Estimate. And, quick correction, when I said “payment,” I should’ve said: include PMI changes if your LTV crosses a threshold. That one bites.

Next, map your fixed income by quality and liquidity. Literally bucket: AAA/AA, A, BBB, BB, B, CCC. For sanity: the US high yield market historically skews ~50-55% BB, ~30-35% B, and ~10-15% CCC by par (ICE BofA indices, 2024). Set your target bands and stick to them. Pre‑commit rules beat headlines. My rule of thumb: cap CCC at a hard number (mine is low single digits) unless spreads are compensating. If the tape screams “soft landing forever,” rules keep you from drifting into risk you didn’t mean to own.

Cash‑flow sensitivity next. Ask: if rates swing 100 bp, what happens? Mortgage payment? HELOC interest? Business loan coverage? Portfolio income? If a 100 bp move would change your monthly budget or push your expected drawdown in a wobble, adjust now, while it’s calm(ish). And yes, we could get either slower cuts or faster cuts from here. Plan both. Slower path: extend cash ladders and favor higher‑quality carry. Faster path: keep a buy list for duration and spread beta on a pullback.

I forgot to say this earlier: check any ARMs or SBA notes for rate caps and periodic adjustment limits. It’s dry, but the math matters. Also peek at prepayment penalties on private credit or business loans, seen that movie; didn’t love the ending.

Build a watchlist today

• Homebuilders offering rate buydowns or closing credits in your zip, those concessions can be worth ~75-100 bp equivalent (we saw it a lot in 2024 and it still pops up now).
• Quality HY issuers (mostly BBs, some Bs) you’d own on a 75-100 bp spread widening. Write the spreads down now; don’t improvise mid‑selloff.
• Your preferred MBS and muni funds for pullback buys. On munis, compare tax‑equivalent yield to your marginal bracket; on MBS, note liquidity and extension risk.

Circle back to the top: tenure assumptions. Planning to move “in 2-3 years”? Great, use 24 months in the breakeven, not 36. I’ve learned the hard way, timing doesn’t reward the last‑minute crowd. Do the small math now so policy day isn’t your decision day.

Frequently Asked Questions

Q: How do I time a home purchase if the Fed cuts rates this quarter?

A: Watch the 10-year Treasury and current-coupon MBS more than headlines. If term premium backs up, mortgage quotes can rise even after a cut. Use a rate lock with a float-down option and get two lender quotes the same day, mortgage pricing moves intraday.

Q: What’s the difference between how mortgage rates and high-yield yields react to Fed cuts?

A: Mortgages run on the long end and mortgage-bond plumbing; high yield runs on spreads and risk appetite. A 30-year mortgage prices off current-coupon MBS, the 10-year Treasury, prepayment convexity, and term premium. If term premium rises 25-40 bps, mortgage rates can drift up despite a cut. We saw versions of that when the ACM term premium turned positive again in late 2023. High yield and loans reprice in days or weeks, spreads compress if recession risk looks contained, widen if cuts are seen as “bad.” In 2024, HY OAS spent a lot of time around 350-400 bps while earnings held up. Practically: for housing, plan a 6-18 month lag and focus on locking opportunistically; for credit, react faster with staged buys and clear spread targets (e.g., start at 450-500 bps, add toward 600 if fundamentals are intact).

Q: Is it better to buy high-yield bonds or loans right after a rate cut?

A: Depends on the cut and your time horizon. Loans (floating-rate) see coupons step down as base rates fall, so income drops. They hold up if credit is fine, but you lose the high carry you enjoyed pre-cut. High yield (fixed-rate) can benefit more if spreads tighten on “good cuts” (soft landing vibe). On “bad cuts” (growth scare), both can widen, but loans may cushion price volatility a bit. My playbook: – If spreads are already tight (500 bps) without a blow-up in earnings, leg into HY funds/ETFs in thirds over 4-6 weeks. – In loans, favor managers with real workout chops; cycle turns expose weak underwriting. Net-net: early after a benign cut, I tilt to HY over loans; into stress, I barbell BB HY and short-duration loans.

Q: Should I worry about “bad cuts” where the Fed eases and credit spreads still widen?

A: Yea, that’s a real risk. A bad cut is when the cut signals weaker growth or rising defaults, so spreads widen even as policy eases. We’ve seen the movie: in 2020, HY OAS blew out past 1,000 bps before policy backstops steadied things (ICE BofA, 2020). Last year, spreads mostly lived near 350-400 bps because earnings held up, but that can change fast if revisions roll over. What to do: 1) Have spread triggers: reduce beta if HY OAS jumps 150-200 bps quickly (e.g., 350 to 550). 2) Upgrade quality on stress: rotate CCC→B/BB, shorten duration, and avoid covenant-lite issuers with negative free cash flow. 3) Hedge, don’t panic-sell: small CDX HY or HYG puts can cap drawdowns; size hedges to 20-40% of risk assets, not the whole book. 4) Keep dry powder: stagger entries in thirds over 2-6 weeks to avoid knife-catching. 5) Watch the plumbing: if primary issuance shuts and dealer balance sheets look thin, spreads can overshoot. 6) For mortgages, remember they ride the term premium, if that backs up 25-40 bps, 30-year quotes can rise even after a cut. Example: Fed trims 25 bps, HY OAS widens from 380 to 560, earnings estimates are flat-to-down, trim lower-quality HY, add BBs near 7-8% yields, keep some cash in T-bills, reassess when issuance reopens. Not pretty, but it’s a plan.

@article{will-rate-cuts-revive-housing-and-junk-debt-in-2025,
    title   = {Will Rate Cuts Revive Housing and Junk Debt in 2025?},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/rate-cuts-housing-risky-debt/}
}