We expect corporate activity to pick up as the global economy rebounds in the second half of the year, once economies reopen and vaccines are rolled out. This rebound in growth should be supported by fiscal and monetary policies, excess household saving and manufacturing restocking. At the same time, we expect central banks to continue delivering extremely accommodative monetary policy with no pre-emptive tightening. The major central banks are likely to continue supporting economies through low rates and asset purchase programmes.
At the same time, we expect companies, especially those that are low-rated and from cyclical sectors, to show more balance sheet discipline and to start a deleveraging cycle. These issuers have accumulated debt due to the decline in economic activity and are now more leverage-constrained.
In addition, companies should continue to benefit from historically attractive financing conditions. The record low cost of funding has led to reduced interest payments on debts and improved corporate creditworthiness. Activity on the primary market remains solid, mostly for refinancing purposes. The high level of cash on corporate balance sheets is reducing the need for additional funding in the near term.
Ratings momentum in HY, measured by downgrade/upgrade volumes, has turned positive.
A slow recovery would hamper the improvement in low-rated companies’ credit profile. Continued access to liquidity remains crucial for companies facing impending debt maturities in order to avoid default.