It’s fair to say that $12.3 trillion of stimulus seems to have killed off the U.S. credit default cycle, according to a Bloomberg News commentary. The simplest way to see this is quite basic: The lowest-rated companies are enjoying the cheapest borrowing costs in history. All-in yields on corporate debt rated triple-C and below have fallen to about 8% from as high as 20.2% as recently as March 2020, ICE Bank of America index data show. Investors have raced one another to lend billions of dollars to cruise companies and airlines even as they bleed cash. The amount of U.S. junk-rated debt included in the Bloomberg Barclays U.S. High Yield bond index has surged to a record face value of $1.53 trillion from $1.2 trillion in October 2019. It’s easy to look at these valuations paired with more leveraged balance sheets and say risk is being mispriced, according to the commentary. Some companies will default, perhaps unexpectedly, even if credit seems priced to perfection now. And yet these yields and low perceived risk of default make perfect sense. In fact, there’s a case for some of these bond yields to go lower. Read more.
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
