The weekly divestment of junk bonds was second only to March
According to epfrglobal, investors withdrew $4.86 billion from high-yield / junk bonds in the week ended September 23, second only to $5.6 billion withdrawn during the worst of the epidemic in mid March. On September 21 and September 22 alone, BlackRock iShares High Yield Bond ETF had nearly $2 billion outflow.
The average yield on us high-yield bonds rose more than 0.5 percentage point in September to 5.83 per cent on September 23, the highest level in two months, according to ice data services, while the return fell into a negative range for the first time since March.
Meanwhile, aethon United brlp, a Texas gas company, postponed the issuance of $700 million of high-yield bonds on the 23rd of US Eastern time, financing the first cancelled junk bond in the United States since July.
Market participants believe that the U.S. election and concerns about the continued impact of the epidemic on the U.S. economic outlook are behind the reasons, causing bond market investors to reduce their exposure to the riskiest high-yield corporate bonds.
Andrew Brenner, head of international fixed income at National Alliance securities, said that the red light has been turned on for high-yield bonds and that the markets risk aversion behavior due to concerns is expected to continue in the future.
In fact, not only junk debt, but also the spread of investment grade corporate debt has recently reached the highest in three months.
Whats more, the Federal Reserve, an important supporter of the US corporate bond market, has recently slowed down its bond buying speed. According to the latest monthly credit purchase plan recently released by the Federal Reserve, no ETF of corporate bonds has been purchased in the purchase plan of corporate credit in the secondary market, and there is almost no corporate bond purchase plan in the open market.
According to Federal Reserve data, as of September 22, the Federal Reserves corporate credit instruments currently held $12.911 billion in corporate bonds and corporate bond ETFs, down from the previous value of $12.867 billion. Citigroup data also showed that the Fed bought an average of $12 million a day in corporate bonds in the week ending September 23, down from $12.6 million a week earlier.
Affected by this, the speed of US corporate bond issuance has also slowed down recently. According to refinitiv, during the week from September 21 to September 25, only six U.S. companies issued new debt, raising $3.6 billion. Just a week ago, 25 companies issued more than $18 billion in new debt.
Still worth investing
Although the recent sharp sell-off, but in the view of analysts, U.S. corporate debt is still worth investment, but also pay attention to the domino effect of corporate default risk.
In addition, he said that from the summary of the recent quarterly earnings report, the balance sheet of us enterprises has improved, especially the higher growth rate of cash reserves on account compared with debt, and the smooth financing channels, which have also effectively improved the fundamentals of enterprises and increased investor confidence.
We believe that with the gradual opening up of various countries and the improvement of the above-mentioned basic factors, the substantial downgrade of the fallen angel rating should have been temporarily ended. He also said.
In contrast, he is more optimistic about junk debt. We expect that the global economic system will recover from the epidemic in the second half of 2020, which will benefit the junk debt that has been deeply affected by the epidemic. In addition, the current yield of junk bonds is about 6%. A higher yield will attract investors with higher risk preference to enter the market and increase allocation, which will drive the asset class of this bond to rise. Despite the high debt ratio of enterprises, we believe that the financing channels of the US corporate bond market are unblocked, and the window for large-scale rating downgrades has temporarily come to an end. Therefore, we are optimistic about the performance of us junk bonds in the next 12 months.
Indeed, this years junk bond market is indeed booming, and the circulation is expected to break the record. According to Bank of America data, as of September 25, total issuance of us junk bonds was $321 billion. Bank of America predicts that it will issue $375 billion of junk bonds in fiscal year 2020, breaking the record of $322 billion in 2012.
Market risk of corporate bond needs to be cautious
However, Wang Xinjie also admitted that there are many risk factors in the US corporate bond market.
We believe that the tightening of us lending standards will affect the financing process of corporate bonds, especially junk bonds. In addition, the economic re blockade following the arrival of the second wave of US epidemic will increase the uncertainty of enterprise operation and may lead to the rise of enterprise default. Moreover, the uncertainties of the US presidential election, the follow-up development of Sino US relations and the flow of funds are also the risk points that need to be paid attention to in the fourth quarter He said.
In fact, the default risk of enterprises is the most worrying risk point in the current market.
According to the U.S. Court bankruptcy application data, by the end of August, 4779 U.S. enterprises had applied for bankruptcy protection, up 28% year-on-year. As of the end of August, 45 companies had more than $1 billion in debt and 157 had more than $500 million in debt, according to U.S. bankruptcy data.
The Bank of China report also pointed out that if the economic recovery of the United States is not as expected, it is easy to evolve into a larger wave of corporate bankruptcy.
Since the second quarter of 2015, the growth rate of outstanding debt of us enterprises has exceeded the growth rate of enterprises pre tax profits. This trend may lead to the difficulty of the issuers of corporate bonds to repay the principal and interest in the future, especially in the situation of severe epidemic situation and increasing pressure on corporate profits. If the economic recovery is not as expected, or the risk compensation required by investors is increased, enterprises will face serious liquidity problems, enterprises holding more short-term debt will be in trouble, the probability of capital chain fracture and debt risk will increase, and companies unable to fulfill their financial obligations will be forced to default or go bankrupt. He further warned that default on debt is contagious, and the default of an enterprise is likely to produce domino effect, and relevant enterprises in the debt chain will face difficulties.
Among them, energy enterprises are undoubtedly the most worrying to the market. J.P. Morgans analysis shows that energy companies have been one of the largest issuers of junk bonds on Wall Street in the past 18 years, with a scale of $937.8 billion. However, more energy companies will be in trouble and may peak in the first and middle of November. According to a report released by rystad energy on September 25, if the U.S. crude oil price is maintained at around $40, 578 U.S. oil exploration and production companies will face bankruptcy by the end of 2021. If the price falls further, more than 1250 shale oil companies are expected to close down. According to Fitchs default data in the first half of 2020, the default probability of the U.S. energy industry will reach 12.3% this year. Source: Yang Qian, editor in charge of Finance and Economics_ NF4425
Among them, energy enterprises are undoubtedly the most worrying to the market. J.P. Morgans analysis shows that energy companies have been one of the largest issuers of junk bonds on Wall Street in the past 18 years, with a scale of $937.8 billion. However, more energy companies will be in trouble and may peak in the first and middle of November.
According to a report released by rystad energy on September 25, if the U.S. crude oil price is maintained at around $40, 578 U.S. oil exploration and production companies will face bankruptcy by the end of 2021. If the price falls further, more than 1250 shale oil companies are expected to close down.