/ Research Center

06.12.2019 - Monthly Cross Asset

Corporate fundamentals are at the centre of the game

Over the last decade, easy financial conditions encouraged an increase in sovereign and corporate debt. Indeed, the leverage of American companies has reached record high levels and US corporate debt has been used for financial risk-taking to fund corporate payments to investors, as well as for mergers and acquisitions. At the opposite, the leverage of European companies has remained at low levels as European companies have remained more cautious over this cycle. In 2019, we have evolved in a new regime: the global economy has entered a synchronised slowdown and major central banks have returned to an easing stance. What are the risks for companies in this new context? We are following closely: The downgrade risk in the US Investment Grade universe. Net leverage for US issuers have resumed their upward trajectory in recent months. In 2020: (1) companies to make a trade-off between maintaining share buy backs and the stability or their debt (2) the downgrade risk to increase among firms facing increase pressure on profits. The default rate risk for low-quality high-yield bonds. Sluggish earning growth poses the biggest threat for companies to pay interest on their debt despite the low cost of financing. Indeed, at this stage of the cycle, we think that interest coverage is more closely related to earnings than to its interest expense: interest coverage could be quickly eroded by a hit to earnings. A selective approach is required in the low-rated Euro and US High Yield segments.

Valentine AINOUZ

Fixed Income and Credit Strategist

04.11.2019 - Insights Paper

High Yield: deep diving needed due to a more uncertain outlook

Global growth has been slowing since 2018, due to a combination of factors, including trade wars - with consequently slower global trade - past US Fed tightening, and rising geopolitical risks. This slowdown has become more pronounced in the last couple of quarters, especially in the most open economies, such as Europe and some EM, while the US economy has remained relatively more resilient despite losing momentum.

Kenneth J. MONAGHAN, Andrew FELTUS, Sergio BERTONCINI, Francesca PANELLI

02.08.2019 - Insights Paper

Seek high yield opportunities, but be aware of liquidity conditions

Low rates and accommodative central bank policies translate into lower funding costs and easier financial conditions for HY companies.

Kenneth J. MONAGHAN, Andrew FELTUS, Sergio BERTONCINI, Laura FIOROT

23.05.2019 - Insights Paper

High Yield: Oasis in search for yield?

Since early 2016, US HY default rates have experienced a sort of “mini –cycle”, peaking at the end of 2016.

Sergio BERTONCINI, Andrew FELTUS

02.02.2018 - Thematic Paper

US credit: don’t worry about the macro, focus on technicals

What should we expect for US credit in 2018, in a context where spreads and volatility are closing in on cycle lows?

Valentine AINOUZ

Fixed Income and Credit Strategist

2017-02-HY DEFAULT RATES 2016 REVIEW AND 2017 OUTLOOK

16.02.2017 - Monthly Cross Asset

HY default rates: 2016 review and 2017 outlook

The end of US HY “mini” default cycle (almost completely commodity-driven) is approaching. Our regressions point to a significant fall in US default rates from the 6% area to 3.7% by December. No material deviation is expected from the still-benign European default cycle, which is likely to remain stable and low by historical standards in 2017, as well.

Sergio BERTONCINI

Head of Rates and FX Research

2016-09: US HY default rates likely to reach a short-term peak in Q1 2017, European defaults to remain low

15.09.2016 - Monthly Cross Asset

US HY default rates likely to reach a short-term peak in Q1 2017, European defaults to remain low

According to the latest numbers published by the rating agencies, in H1-2016 default rates accelerated with respect to 2015. However, globally defaults remained mostly concentrated in the US: 74% of the issuers that defaulted in the year to date were North American companies, 20% were from emerging countries, while only 6% were European companies.

Sergio BERTONCINI

Head of Rates and FX Research

2016-05-HY default rates: a reality check and what to expect

17.05.2016 - Monthly Cross Asset

HY default rates: a reality check and what to expect

Defaults seem to have turned the cycle in the US, but the recent rise is still very much a low-rated, commoditydriven story and not yet a broadbased trend.

Sergio BERTONCINI

Head of Rates and FX Research

15.01.2016 - Monthly Cross Asset

EUR vs USA speculative grade market: a comparison from different angles

European HY lower exposure to the energy sector and its higher average rating quality with respect to the US asset class crucially contributed to European speculative grade bonds outperformance vs their American counterparties in recent quarters.

Sergio BERTONCINI

Head of Rates and FX Research

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Corporate fundamentals are at the centre of the game

High Yield: deep diving needed due to a more uncertain outlook

Seek high yield opportunities, but be aware of liquidity conditions

High Yield: Oasis in search for yield?

US credit: don’t worry about the macro, focus on technicals

HY default rates: 2016 review and 2017 outlook

US HY default rates likely to reach a short-term peak in Q1 2017, European defaults to remain low

HY default rates: a reality check and what to expect

EUR vs USA speculative grade market: a comparison from different angles

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