The focus is now on the economies of G7 countries as corporate debt is seeing higher borrowing costs, deteriorating credit quality and increasing trade tensions, collectively raising yellow cards in global markets. Currently, in the US, according to data from S&P, junk bond rated issuers that are at B minus or lower stand at 25 percent, up from 17 percent just four years ago. And note that this 25 percent level is the same level we saw in 2009. Quality is fading slowly.
One bank in the US produced a report that said a third of US issuers were now considered high yield, measured in the company’s ability to pay its debt, yet another sign of weakness. Also note that investors are now demanding a greater premium in yield to hold bonds of investment grade companies, again measured in the spread over ultra low government debt. Recently, the spread has reached 149 basis points, versus 87 basis points in February of 2018. Recently, spreads for US issuers with triple C ratings have jumped to 275 bps since the end of September.
This is one market that is worth keeping an eye on as the US China trade tensions rise and concerns of global recession tick higher. We will be looking at GDP, Payrolls, and a host of other indictors while updating our platform. At least from a market perspective, there will be a lot to talk about in the coming 6 months.