Our subject matter experts discuss the use of credit risk measures in evaluating firms to determine tendencies in performance in comparison to their peers in the S&P 500 universe.
In early October, equity markets suffered their second major correction this year and their worst fall in more than eight months. Rising yields in particular increase the potential for equity volatility.
Our subject matter experts demonstrate that firms with high credit quality risk and high default risk tend to underperform their peers in the S&P 500 universe on average, especially seen in the tech sector over the last two years. Our experts also show how CreditEdge factor-based strategies have tended to succeed in particular during flattening yield curve environments, with the performance of the low credit quality risk strategy tending to be more insulated to interest rate risk on average.
The secular decline by Treasury bond yields since 1982 has been accompanied by a secular climb in the ratio of private and public nonfinancial-sector debt to GDP.
High yield bond issuance and newly rated loans from high-yield issuers have soared thus far in 2021.
Monetary and fiscal stimuli seem to be surfacing here, there, and everywhere.
Weekly Market Outlook: Real GDP Growth's Biggest Improvement since 1950 May Power 2021's Profits Growth
Each noteworthy deterioration of U.S. corporate credit quality since 1982 was accompanied by a significant contraction of yearlong core pretax profits, where the latter is supplied by the National Income Product Accounts of the U.S.
Both the average expected default frequency metric of U.S./Canadian issuers and first-quarter 2021's credit rating revisions of U.S. high-yield issuers favor a renewed narrowing of the high-yield bond spread.
This paper gives an overview of the Moody's Analytics model of bonds' Fair Value Spread and Alpha Factor.
Weekly Market Outlook: Stocks and High-Yield Performed Well Amid Prior Upturns by Treasury Bond Yields
How did financial markets fare during the four previous distinct upturns by Treasury bond yields since December 2008's Great Recession bottom for the 10-year Treasury yield?
Following the recessions of 1990-1991, 2001, and 2008-2009, the U.S. high-yield default rate peaked at June 1991's 12.3%, January 2002's 11.1%, and November 2009's 14.7%.
Markets now fret over the possibility that massive amounts of fiscal and monetary stimulus may damage future financial conditions and economic performance.
Moody's Analytics' average expected default frequency metric of U.S./Canadian high-yield issuers, or high-yield EDF, recently sank to 2.36% for its lowest reading since the 2.35% of early October 2018.