credit Markets

Distressed. Officially.

A "massive rush for liquidity".

For the first time since the GFC, junk bonds (as a group) are officially "distressed". To be sure, credit markets have been "distressed" in a kind of general, anecdotal sense for weeks, but now we've breached the technical threshold beyond which we can all declare a high yield state of emergency. On Friday, junk spreads breached 1,000bps, a level last seen in June of 2009. It was the culmination of a harrowing week that found Goldman warning of a 24% contraction in the US economy in Q2 and Bridgewater sounding the alarm on a possible $4 trillion in losses for US corporates. Downgrades and credit events are a certainty. The default cycle which has been forestalled for years by central bank largesse is likely upon us. "A now weak and volatile US equity market helps to explain the lift-off by MA’s average high-yield expected default frequency metric from year-end 2019’s 4.18% to March’s 10.62%", Moody's said Thursday. "The high-yield EDF last broke above 10% in October 2008", the ratings agency added, noting that "during the Great Recession, the month-long average of the high-yield EDF eventually crested at the 14.6% of February 2009". (Moody's) In IG, outflows in the
Subscribe or log in to read the rest of this content.

5 comments on “Distressed. Officially.

  1. Anonymous says:

    Come on, give us some positive news, please!

  2. RStantz says:

    Kind of “whack a mole” the dollar demand will make EM dollar denominated debt Chernobyl like.

  3. jyl says:

    Is there a mechanism for the ETFs to self-suspend trading in their shares?

  4. Anaximander says:

    Ed Altman, inventor of the Z-Score, said that as of Dec 31, 2019 approximately 30% of BBB bonds were really HY. How high might we speculate that percentage is now?

    • Mr. Lucky says:

      Several companies in the S&P currently show negative net worth on their B/S because they have bought back so much stock at inflated prices it wipes out their equity. KMB is one of these, for example, multiple years with no net worth yet it carries A/A-1 debt ratings. A bunch of these now reside in our key indexes. What will the coming stress do to them? We’ve already seen what three months has done to Boeing and the airlines (“Bail me, I spent all my money to make my bosses rich now I have no lunch money.”)

Speak your mind

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Skip to toolbar