/ Research Center

04.11.2020 - Monthly Cross Asset

HY default cycle and rating changes: how it is “different” this time

Despite a severe macro contraction, policy reaction to the covid-crisis limited most of corporates’ rating migration and HY defaults to low-rated debt. This piece outlines our expectations on both rating and default cycles to come.

Sergio BERTONCINI, Mickael BELLAÏCHE

22.04.2020 - Insights Paper

Revisiting the global high yield outlook in the wake of the COVID-19 pandemic

Global HY markets sold off aggressively between February and March in response to the COVID-19 outbreak, the oil price war and the liquidity freeze in some markets. An analysis of past peak-and-trough episodes in the US HY market shows that on most occasions investors have enjoyed positive market returns just one year after the peak. Three years past such a peak, market returns have proven positive in all six occurrences since 2000.

Kenneth J. MONAGHAN, Andrew FELTUS, Matt SHULKIN, Sergio BERTONCINI, Marina COHEN, Colm D’ROSARIO

05.03.2020 - Insights Paper

Fixed Income: Zero rates do not mean zero returns

As we enter the 2020s, a look back over the previous decade provides a key take-away for investors: a zero-rate environment does not lead to zero performance for bond investors. Last year was a clear example as bond markets delivered strong performances with almost – if not above – double-digit returns across the board. Looking back over the past five years, annualised returns across different bond markets were also positive. The Bloomberg Barclays Global Aggregate USD-Hedged index delivered 8.7% in 2019 and an average of 3.5% over the past five years.

Eric BRARD

Head of Fixed Income

21.02.2020 - Insights Paper

Global high yield outlook: Be confident, but not complacent

Last year was a strong year for global bond markets, which were supported by the accommodative stance of the main central banks and strong investor demand. US, European and EM high yield (HY) bonds all returned more than 14% swapped into US dollars. The performance was led by the higher-quality segments of the market, such as BB-rated bonds, as well as the strong performance of CCC bonds in Europe. This was due to the search for yield across credit products, helped by positive risk sentiment.

Kenneth J. MONAGHAN, Andrew FELTUS, Matt SHULKIN, Marina COHEN, Sergio BERTONCINI

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

Deputy Head of Developed Market Strategy Research

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

Deputy Head of Developed Market Strategy Research

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