High-yield bonds have led the credit market in total return thus far in 2019. After soaring from 6.32% at the end of September to 8.06% by year-end 2018, a composite speculative-grade bond yield has dropped to February 20's 6.79%.
In terms of a moving yearlong average, U.S. nonfinancial corporate debt rose to a record high 46.0% of GDP as of the span-ended September 2018. Nonfinancial corporate debt's 6.4% year-over-year increase for the 12-months-ended September 2018 outran nominal GDP's comparably measured rise of 5.0%.
The Canadian housing market is going through a period of decompression
Using the Moody's Analytics model of the global economy, we consider the fallout if current negotiations break down and trade tensions between the two economic giants reignite.
Notwithstanding January's bigger-than-expected addition to payrolls, the futures market recently assigned a mere 3% probability to a hiking of fed funds at any point in 2019.
International Financial Reporting Standard (IFRS) 9 introduced a new accounting standard for financial instruments when it came into effect in January 2018. Taking first place for helping customers solve challenges around IFRS 9 is Moody's Analytics, winner of the inaugural RiskTech100 ® IFRS 9 award.
As high ranking Federal Reserve officials reiterated many times earlier, monetary policy is not on a preset course.
Because of its acute sensitivity to the business-cycle and corporate earnings, the high-yield credit market will have more to worry about this year.
In 2018's final quarter, the 22 downgrades of U.S. investment-grade companies included nine that were at least partly ascribed to mergers, acquisitions and divestitures and three that were linked to equity buybacks. Only half, or 11, of fourth-quarter 2018's U.S. investment-grade downgrades were primarily driven by worsened operating or market fundamentals.
The unbeatable winner in the credit risk space is Moody's Analytics, previous winner of the Credit Risk award two years in a row, which has now also secured the new RiskTech100 ® Credit Risk for the Banking Book award.
In the past decade, changing capital adequacy requirements have resulted in an increasing spotlight on models for measuring credit exposures. Firms with proven models will build trust with regulators and can optimize capital in a more efficient way, making model validation essential for protecting the bottom line.
Global leverage has been rising as a share of GDP over the past decade. This is a growing concern, as questions around sustainability loom large in some pockets. Also, although global financial conditions remain largely accommodative, debt servicing costs will continue rising over the next year after an extended period of low borrowing costs, putting pressure on balance sheets.
The outstanding high-yield corporate bonds of U.S.-domiciled issuers fell from a year earlier for an eighth consecutive quarter in 2018's final three months. Fourth-quarter 2018's 4.6% year-over-year drop lowered the outstandings of U.S. corporate high-yield bonds to $1.221 trillion, which was 9.1% under fourth-quarter 2016's current zenith of $1.344 trillion.
Moody's Analytics Wins CECL Category Award in 2019 Chartis RiskTech100
The world is now incapable of shouldering a 10-year Treasury yield above 3%. A remedial decline by the U.S.' benchmark interest rates will be critical to rejuvenating global business activity and stabilizing financial markets. Otherwise, the corporate earnings outlook might deteriorate by enough to sink the market value of U.S. common stock by another 20% and swell the now 552 basis point high yield bond spread to 800 bp.
Moody's Analytics outlook for Japan suggests GDP will grow near its potential pace, which hovers from 0.5% to 1%.
Vietnam's expansion has charged ahead despite the recent financial and trade turmoil inflicting pain across Southeast Asia's emerging markets Moody's Analytics estimates output growth at 6.7% in 2018.
In this paper, we examine regional patterns of economic growth across China's 31 province-level administrative divisions, comparing changes in industrial structure, productivity growth and demographics.
Through this study, we illustrate the challenges for modelers under CECL and assess the impact of the new accounting standards.
Given the Fed's willingness to continue its two-pronged firming of monetary policy amid slower economic growth and below-target inflation, the still benign outlook for corporate credit will be menaced by above-average risk. In view of above-average international and domestic political risk, as well as the uncertainties stemming from trade frictions between China and the U.S., the last thing 2019's outlook needs is elevated interest-rate risk.
The investment-grade bond market appears more anxious about the future than the high-yield bond market. A now well above-trend Baa industrial company bond yield spread warns of a wider high-yield bond spread. To the contrary, a trend-like high-yield spread favors a thinner Baa spread. In all likelihood, if the still positive outlook for profits holds, the high-yield bond spread will prove to be more prescient than the now swollen Baa spread.
Both the sell-off of equities and the very limited and slight inversion of the Treasury yield curve at the three- and five-year maturities hint of a possible pause for the latest series of Fed rate hikes. Since September 26's last hiking of fed funds to 2.125%, the 10-year Treasury yield has dropped from 3.05% to a recent 2.87%, and the five-year Treasury yield has sunk from 2.95% to 2.74%.
With the economy now facing its most vulnerable window of growth since the global financial crisis, it appears the latter is again more of a priority.
In this paper, we provide empirical support for the conclusion that the CECL standard will be less procyclical than the incurred loss standard.
We asked attendees of the 2018 Moody's Analytics Summit their thoughts on four key questions in preparation for the new standard.
Steven Morrison's second whitepaper, Profit Emergence under IFRS 17, turns its attention to the Variable Fee Approach (VFA). Explore his practical insights on financial risk and its impact on contracts with participation features.
Greater uncertainty surrounding the sustainability of corporate earnings growth has adversely affected the performance of medium- and lower-grade corporate bonds. If fears over the adequacy of future corporate earnings persist, the upside for benchmark U.S. interest rates is probably well under consensus expectations.
Automation has become the latest industry buzzword, but what does this mean? How can automation streamline your commercial loan origination process, increase the productivity of your lending officers and make your customers happier?
Today's loan origination landscape is forcing lenders to rethink their workflow engines to adapt to the new environment. Without a strategic approach to designing the workflow engine, lenders will find themselves battling rising costs and inefficiencies in an increasingly fragmented and competitive marketplace.
Gridlock is here. Because of the constraints placed on fiscal policy by a Democratic House and a Republican Senate, the Federal Reserve's role at assuring an adequate rate of economic growth has been magnified. Though currently not a pressing issue, a widely anticipated deceleration of corporate revenues and profits may eventually influence Fed policy. Such slowdowns increase the risk of widespread cutbacks in business outlays on capital goods and staff. A severe enough retrenchment in business spending would quickly end the current episode of monetary firming. Both equities and corporate bonds can transcend the slower growth of corporate earnings. However, if an unbending climb by benchmark interest rates amid continually slower profits growth triggers expectations of a prolonged shrinkage of earnings, share prices will sink and corporate credit spreads will swell.
