Demand for music-publishing rights grew as low interest rates pushed yield-seeking investors into alternative assets. Song catalogs are sometimes compared to high-yield bonds for the steady income they pay out in the form of music royalties. Every time a song is played in a nightclub or on a streaming platform such as Apple Music, the owner of the rights to the underlying composition gets paid.

Royalties are also considered relatively recession-proof. Even if pinched consumers cancel their

Spotify

SPOT 4.78%

or YouTube subscriptions, ad-supported free streaming tiers pay out to rights owners for songs that users play.

Catalog valuations have shot up in recent years. In 2021, investors paid multiples equivalent to around 22 times the net publisher’s share of royalties—a standard industry measure of income—up from 11 times in 2015, data from investment bank Shot Tower Capital shows. The prospect of higher interest rates hasn’t spooked buyers yet. Deal multiples are up slightly this year, although the average may be flattered by a number of blockbuster transactions for established acts such as Neil Diamond, whose predictable royalties are appealing.

Higher interest rates could hurt demand for music catalogs if investors are able to find attractive yields elsewhere, or switch to inflation-indexed assets such as certain types of real estate. Inflation, currently running at 7.9% in the U.S., will reduce the purchasing power of future cash flows generated by music catalogs. Mechanical royalty rates set in Washington haven’t historically kept pace with changes in consumer prices, according to George Howard, associate professor of management at Berklee College of Music.

Yet demand for music among consumers is particularly strong at the moment. Data released last week by the International Federation of the Phonographic Industry shows that the global recorded music industry grew 18.5% in 2021, more than double the average rate of the preceding four years.

If last year’s performance continues, growth forecasts will look conservative. Wall Street expected the music industry to grow around 8.4% a year on average between 2021 and 2025. Based on this estimate, a catalog bought for 19 times net publisher’s share in 2020 would deliver a 12% levered return for investors, even if it had to be sold at a lower 15 times multiple in 2025, Shot Tower Capital estimates. Strong growth might allow owners to cash out at a better multiple, offsetting some of the drag of higher interest rates.

Streaming platforms are still just taking off in emerging markets—Latin America was among the music industry’s fastest-growing regions last year. One risk to watch is the cost of data: In low-income countries, the price of one gigabyte of mobile broadband data ate up 7.9% of consumers’ average monthly income in 2021—an increase from 7.5% in 2020 and well above the 2% level considered affordable by the Alliance for Affordable Internet.

As capital to buy music catalogs becomes more expensive, returns on royalties inevitably won’t look as appealing. As Adam Sansiveri of Bernstein Private Wealth Management puts it, “the growth hurdle for royalties and therefore streaming is moving higher.” For now, though, enthusiastic music fans are keeping catalog valuations on a high note.

Write to Carol Ryan at carol.ryan@wsj.com