As interest rates march higher, winners and losers will emerge in the bond market, according to UBS. Treasury yields have been rising thanks to higher oil prices and inflation fears, as well as concerns over the deficit and federal debt outstanding. The 10-year yield stands at about 5.24% Monday, its highest in decades. Bond yields move inversely to prices. In turn, yields in the credit market are also climbing, and dispersion is broadening. "Higher rates should widen the gap between stronger and weaker borrowers across both sectors and ratings," UBS strategist Matthew Misch said in a note Wednesday. That means the caliber of bonds matter as higher rates increasingly expose differences in credit quality, Misch added. Most public credit markets are seeing average to slightly above average median-balance sheet health, he noted. Those with lower-rated financial leverage are showing below-average fundamental characteristics. "BB borrowers appear materially better positioned than single-Bs and CCCs, reflecting stronger balance sheets, greater financing flexibility and better access to capital markets," Misch said, referring to credit rating agency ratings in the high-yield market. HYBB YTD mountain iShares BB Rated Corporate Bond ETF year to date High yield bonds are rated BB+ and below at S & P, or Baa1 or below at Moody's. Credit spreads widen The market is taking notice. As of Friday, high-yield spreads widened to levels not seen since April, according to the Federal Reserve Bank of St. Louis . When credit spreads widen, investors are demanding higher yields for holding corporate debt, viewing it as riskier. The lowest-rated bonds, at CCC or below, have seen spreads widen to 1,128 basis points from 800 over the past year. One basis point equals one one-hundredth of a percent, or 0.01%. Meanwhile, spreads in the BB-rated cohort moved to 176 basis points last week, the highest since July, from 153, still below the highest of the past year. Investors are also keeping an eye on maturing debt, since companies that locked in low rates during the pandemic will now have to refinance at higher rates. While a large amount of debt is coming due through 2028, approximately 75% of the maturities due during that time are not due until the final year, Misch noted. "The key question is therefore less about the size of the maturity wall and more about which borrowers retain access to capital markets," he wrote. "The clearest pressure points remain CCC-rated issuers, private credit and U.S. leveraged-loan software. These segments combine weaker fundamentals, greater refinancing needs, and less flexibility to absorb higher financing costs." Refinancing risk is concentrated rather than systemic, he added. The winners While higher-quality, high-yield borrowers are best positioned to absorb costlier financing rates, the story extends beyond balance sheets, Misch said. "If higher rates persist, earnings resilience is likely to matter just as much as leverage," he wrote. "We continue to favor issuers with strong balance sheets, durable cash flows, ample liquidity and consistent access to capital markets." Those rated BB continue to stand out, he said. Sector-wise, Misch believes utilities should benefit from defensive cash flows and limited sensitivity to slower growth. He's cautious on technology, communications and CCC-rated credit. Within investment-grade corporates, he prefers consumer non-cyclicals, which he said should have greater downside protection thanks to stable demand and resilient earnings. The strategist is staying away from financials and technology. While the former usually has healthy balance sheets, higher-rate environments have historically resulted in weaker relative performance than more defensive sectors, Misch said. The latter has headwinds such as duration sensitivity, elevated issuance and ongoing investment needs related to artificial intelligence. — CNBC's Jeff Cox and Justin Zacks contributed reporting.

As interest rates march higher, winners and losers will emerge in the bond market, according to UBS. Treasury yields have been rising thanks to higher oil prices and inflation fears, as well as concerns over the deficit and federal debt outstanding. The 10-year yield stands at about 5.24% Monday, its highest in decades. Bond yields move inversely to prices. In turn, yields in the credit market are also climbing, and dispersion is broadening. "Higher rates should widen the gap between stronger and weaker borrowers across both sectors and ratings," UBS strategist Matthew Misch said in a note Wednesday. That means the caliber of bonds matter as higher rates increasingly expose differences in credit quality, Misch added. Most public credit markets are seeing average to slightly above average median-balance sheet health, he noted. Those with lower-rated financial leverage are showing below-average fundamental characteristics. "BB borrowers appear materially better positioned than single-Bs and CCCs, reflecting stronger balance sheets, greater financing flexibility and better access to capital markets," Misch said, referring to credit rating agency ratings in the high-yield market. HYBB YTD mountain iShares BB Rated Corporate Bond ETF year to date High yield bonds are rated BB+ and below at S & P, or Baa1 or below at Moody's. Credit spreads widen The market is taking notice. As of Friday, high-yield spreads widened to levels not seen since April, according to the Federal Reserve Bank of St. Louis . When credit spreads widen, investors are demanding higher yields for holding corporate debt, viewing it as riskier. The lowest-rated bonds, at CCC or below, have seen spreads widen to 1,128 basis points from 800 over the past year. One basis point equals one one-hundredth of a percent, or 0.01%. Meanwhile, spreads in the BB-rated cohort moved to 176 basis points last week, the highest since July, from 153, still below the highest of the past year. Investors are also keeping an eye on maturing debt, since companies that locked in low rates during the pandemic will now have to refinance at higher rates. While a large amount of debt is coming due through 2028, approximately 75% of the maturities due during that time are not due until the final year, Misch noted. "The key question is therefore less about the size of the maturity wall and more about which borrowers retain access to capital markets," he wrote. "The clearest pressure points remain CCC-rated issuers, private credit and U.S. leveraged-loan software. These segments combine weaker fundamentals, greater refinancing needs, and less flexibility to absorb higher financing costs." Refinancing risk is concentrated rather than systemic, he added. The winners While higher-quality, high-yield borrowers are best positioned to absorb costlier financing rates, the story extends beyond balance sheets, Misch said. "If higher rates persist, earnings resilience is likely to matter just as much as leverage," he wrote. "We continue to favor issuers with strong balance sheets, durable cash flows, ample liquidity and consistent access to capital markets." Those rated BB continue to stand out, he said. Sector-wise, Misch believes utilities should benefit from defensive cash flows and limited sensitivity to slower growth. He's cautious on technology, communications and CCC-rated credit. Within investment-grade corporates, he prefers consumer non-cyclicals, which he said should have greater downside protection thanks to stable demand and resilient earnings. The strategist is staying away from financials and technology. While the former usually has healthy balance sheets, higher-rate environments have historically resulted in weaker relative performance than more defensive sectors, Misch said. The latter has headwinds such as duration sensitivity, elevated issuance and ongoing investment needs related to artificial intelligence. — CNBC's Jeff Cox and Justin Zacks contributed reporting.

As interest rates march higher, winners and losers will emerge in the bond market, according to UBS. Treasury yields have been rising thanks to higher oil prices and inflation fears, as well as concerns over the deficit and federal debt outstanding. The 10-year yield stands at about 5.24% Monday, its highest in decades. Bond yields move inversely to prices. In turn, yields in the credit market are also climbing, and dispersion is broadening. "Higher rates should widen the gap between stronger and weaker borrowers across both sectors and ratings," UBS strategist Matthew Misch said in a note Wednesday. That means the caliber of bonds matter as higher rates increasingly expose differences in credit quality, Misch added. Most public credit markets are seeing average to slightly above average median-balance sheet health, he noted. Those with lower-rated financial leverage are showing below-average fundamental characteristics. "BB borrowers appear materially better positioned than single-Bs and CCCs, reflecting stronger balance sheets, greater financing flexibility and better access to capital markets," Misch said, referring to credit rating agency ratings in the high-yield market. HYBB YTD mountain iShares BB Rated Corporate Bond ETF year to date High yield bonds are rated BB+ and below at S & P, or Baa1 or below at Moody's. Credit spreads widen The market is taking notice. As of Friday, high-yield spreads widened to levels not seen since April, according to the Federal Reserve Bank of St. Louis . When credit spreads widen, investors are demanding higher yields for holding corporate debt, viewing it as riskier. The lowest-rated bonds, at CCC or below, have seen spreads widen to 1,128 basis points from 800 over the past year. One basis point equals one one-hundredth of a percent, or 0.01%. Meanwhile, spreads in the BB-rated cohort moved to 176 basis points last week, the highest since July, from 153, still below the highest of the past year. Investors are also keeping an eye on maturing debt, since companies that locked in low rates during the pandemic will now have to refinance at higher rates. While a large amount of debt is coming due through 2028, approximately 75% of the maturities due during that time are not due until the final year, Misch noted. "The key question is therefore less about the size of the maturity wall and more about which borrowers retain access to capital markets," he wrote. "The clearest pressure points remain CCC-rated issuers, private credit and U.S. leveraged-loan software. These segments combine weaker fundamentals, greater refinancing needs, and less flexibility to absorb higher financing costs." Refinancing risk is concentrated rather than systemic, he added. The winners While higher-quality, high-yield borrowers are best positioned to absorb costlier financing rates, the story extends beyond balance sheets, Misch said. "If higher rates persist, earnings resilience is likely to matter just as much as leverage," he wrote. "We continue to favor issuers with strong balance sheets, durable cash flows, ample liquidity and consistent access to capital markets." Those rated BB continue to stand out, he said. Sector-wise, Misch believes utilities should benefit from defensive cash flows and limited sensitivity to slower growth. He's cautious on technology, communications and CCC-rated credit. Within investment-grade corporates, he prefers consumer non-cyclicals, which he said should have greater downside protection thanks to stable demand and resilient earnings. The strategist is staying away from financials and technology. While the former usually has healthy balance sheets, higher-rate environments have historically resulted in weaker relative performance than more defensive sectors, Misch said. The latter has headwinds such as duration sensitivity, elevated issuance and ongoing investment needs related to artificial intelligence. — CNBC's Jeff Cox and Justin Zacks contributed reporting.

As interest rates march higher, winners and losers will emerge in the bond market, according to UBS. Treasury yields have been rising thanks to higher oil prices and inflation fears, as well as concerns over the deficit and federal debt outstanding. The 10-year yield stands at about 5.24% Monday, its highest in decades. Bond yields move inversely to prices. In turn, yields in the credit market are also climbing, and dispersion is broadening. "Higher rates should widen the gap between stronger and weaker borrowers across both sectors and ratings," UBS strategist Matthew Misch said in a note Wednesday. That means the caliber of bonds matter as higher rates increasingly expose differences in credit quality, Misch added. Most public credit markets are seeing average to slightly above average median-balance sheet health, he noted. Those with lower-rated financial leverage are showing below-average fundamental characteristics. "BB borrowers appear materially better positioned than single-Bs and CCCs, reflecting stronger balance sheets, greater financing flexibility and better access to capital markets," Misch said, referring to credit rating agency ratings in the high-yield market. HYBB YTD mountain iShares BB Rated Corporate Bond ETF year to date High yield bonds are rated BB+ and below at S & P, or Baa1 or below at Moody's. Credit spreads widen The market is taking notice. As of Friday, high-yield spreads widened to levels not seen since April, according to the Federal Reserve Bank of St. Louis . When credit spreads widen, investors are demanding higher yields for holding corporate debt, viewing it as riskier. The lowest-rated bonds, at CCC or below, have seen spreads widen to 1,128 basis points from 800 over the past year. One basis point equals one one-hundredth of a percent, or 0.01%. Meanwhile, spreads in the BB-rated cohort moved to 176 basis points last week, the highest since July, from 153, still below the highest of the past year. Investors are also keeping an eye on maturing debt, since companies that locked in low rates during the pandemic will now have to refinance at higher rates. While a large amount of debt is coming due through 2028, approximately 75% of the maturities due during that time are not due until the final year, Misch noted. "The key question is therefore less about the size of the maturity wall and more about which borrowers retain access to capital markets," he wrote. "The clearest pressure points remain CCC-rated issuers, private credit and U.S. leveraged-loan software. These segments combine weaker fundamentals, greater refinancing needs, and less flexibility to absorb higher financing costs." Refinancing risk is concentrated rather than systemic, he added. The winners While higher-quality, high-yield borrowers are best positioned to absorb costlier financing rates, the story extends beyond balance sheets, Misch said. "If higher rates persist, earnings resilience is likely to matter just as much as leverage," he wrote. "We continue to favor issuers with strong balance sheets, durable cash flows, ample liquidity and consistent access to capital markets." Those rated BB continue to stand out, he said. Sector-wise, Misch believes utilities should benefit from defensive cash flows and limited sensitivity to slower growth. He's cautious on technology, communications and CCC-rated credit. Within investment-grade corporates, he prefers consumer non-cyclicals, which he said should have greater downside protection thanks to stable demand and resilient earnings. The strategist is staying away from financials and technology. While the former usually has healthy balance sheets, higher-rate environments have historically resulted in weaker relative performance than more defensive sectors, Misch said. The latter has headwinds such as duration sensitivity, elevated issuance and ongoing investment needs related to artificial intelligence. — CNBC's Jeff Cox and Justin Zacks contributed reporting.

As interest rates march higher, winners and losers will emerge in the bond market, according to UBS. Treasury yields have been rising thanks to higher oil prices and inflation fears, as well as concerns over the deficit and federal debt outstanding. The 10-year yield stands at about 5.24% Monday, its highest in decades. Bond yields move inversely to prices. In turn, yields in the credit market are also climbing, and dispersion is broadening. "Higher rates should widen the gap between stronger and weaker borrowers across both sectors and ratings," UBS strategist Matthew Misch said in a note Wednesday. That means the caliber of bonds matter as higher rates increasingly expose differences in credit quality, Misch added. Most public credit markets are seeing average to slightly above average median-balance sheet health, he noted. Those with lower-rated financial leverage are showing below-average fundamental characteristics. "BB borrowers appear materially better positioned than single-Bs and CCCs, reflecting stronger balance sheets, greater financing flexibility and better access to capital markets," Misch said, referring to credit rating agency ratings in the high-yield market. HYBB YTD mountain iShares BB Rated Corporate Bond ETF year to date High yield bonds are rated BB+ and below at S & P, or Baa1 or below at Moody's. Credit spreads widen The market is taking notice. As of Friday, high-yield spreads widened to levels not seen since April, according to the Federal Reserve Bank of St. Louis . When credit spreads widen, investors are demanding higher yields for holding corporate debt, viewing it as riskier. The lowest-rated bonds, at CCC or below, have seen spreads widen to 1,128 basis points from 800 over the past year. One basis point equals one one-hundredth of a percent, or 0.01%. Meanwhile, spreads in the BB-rated cohort moved to 176 basis points last week, the highest since July, from 153, still below the highest of the past year. Investors are also keeping an eye on maturing debt, since companies that locked in low rates during the pandemic will now have to refinance at higher rates. While a large amount of debt is coming due through 2028, approximately 75% of the maturities due during that time are not due until the final year, Misch noted. "The key question is therefore less about the size of the maturity wall and more about which borrowers retain access to capital markets," he wrote. "The clearest pressure points remain CCC-rated issuers, private credit and U.S. leveraged-loan software. These segments combine weaker fundamentals, greater refinancing needs, and less flexibility to absorb higher financing costs." Refinancing risk is concentrated rather than systemic, he added. The winners While higher-quality, high-yield borrowers are best positioned to absorb costlier financing rates, the story extends beyond balance sheets, Misch said. "If higher rates persist, earnings resilience is likely to matter just as much as leverage," he wrote. "We continue to favor issuers with strong balance sheets, durable cash flows, ample liquidity and consistent access to capital markets." Those rated BB continue to stand out, he said. Sector-wise, Misch believes utilities should benefit from defensive cash flows and limited sensitivity to slower growth. He's cautious on technology, communications and CCC-rated credit. Within investment-grade corporates, he prefers consumer non-cyclicals, which he said should have greater downside protection thanks to stable demand and resilient earnings. The strategist is staying away from financials and technology. While the former usually has healthy balance sheets, higher-rate environments have historically resulted in weaker relative performance than more defensive sectors, Misch said. The latter has headwinds such as duration sensitivity, elevated issuance and ongoing investment needs related to artificial intelligence. — CNBC's Jeff Cox and Justin Zacks contributed reporting.

As interest rates march higher, winners and losers will emerge in the bond market, according to UBS. Treasury yields have been rising thanks to higher oil prices and inflation fears, as well as concerns over the deficit and federal debt outstanding. The 10-year yield stands at about 5.24% Monday, its highest in decades. Bond yields move inversely to prices. In turn, yields in the credit market are also climbing, and dispersion is broadening. "Higher rates should widen the gap between stronger and weaker borrowers across both sectors and ratings," UBS strategist Matthew Misch said in a note Wednesday. That means the caliber of bonds matter as higher rates increasingly expose differences in credit quality, Misch added. Most public credit markets are seeing average to slightly above average median-balance sheet health, he noted. Those with lower-rated financial leverage are showing below-average fundamental characteristics. "BB borrowers appear materially better positioned than single-Bs and CCCs, reflecting stronger balance sheets, greater financing flexibility and better access to capital markets," Misch said, referring to credit rating agency ratings in the high-yield market. HYBB YTD mountain iShares BB Rated Corporate Bond ETF year to date High yield bonds are rated BB+ and below at S & P, or Baa1 or below at Moody's. Credit spreads widen The market is taking notice. As of Friday, high-yield spreads widened to levels not seen since April, according to the Federal Reserve Bank of St. Louis . When credit spreads widen, investors are demanding higher yields for holding corporate debt, viewing it as riskier. The lowest-rated bonds, at CCC or below, have seen spreads widen to 1,128 basis points from 800 over the past year. One basis point equals one one-hundredth of a percent, or 0.01%. Meanwhile, spreads in the BB-rated cohort moved to 176 basis points last week, the highest since July, from 153, still below the highest of the past year. Investors are also keeping an eye on maturing debt, since companies that locked in low rates during the pandemic will now have to refinance at higher rates. While a large amount of debt is coming due through 2028, approximately 75% of the maturities due during that time are not due until the final year, Misch noted. "The key question is therefore less about the size of the maturity wall and more about which borrowers retain access to capital markets," he wrote. "The clearest pressure points remain CCC-rated issuers, private credit and U.S. leveraged-loan software. These segments combine weaker fundamentals, greater refinancing needs, and less flexibility to absorb higher financing costs." Refinancing risk is concentrated rather than systemic, he added. The winners While higher-quality, high-yield borrowers are best positioned to absorb costlier financing rates, the story extends beyond balance sheets, Misch said. "If higher rates persist, earnings resilience is likely to matter just as much as leverage," he wrote. "We continue to favor issuers with strong balance sheets, durable cash flows, ample liquidity and consistent access to capital markets." Those rated BB continue to stand out, he said. Sector-wise, Misch believes utilities should benefit from defensive cash flows and limited sensitivity to slower growth. He's cautious on technology, communications and CCC-rated credit. Within investment-grade corporates, he prefers consumer non-cyclicals, which he said should have greater downside protection thanks to stable demand and resilient earnings. The strategist is staying away from financials and technology. While the former usually has healthy balance sheets, higher-rate environments have historically resulted in weaker relative performance than more defensive sectors, Misch said. The latter has headwinds such as duration sensitivity, elevated issuance and ongoing investment needs related to artificial intelligence. — CNBC's Jeff Cox and Justin Zacks contributed reporting.