The Default Risk is Overblown

OpinioPro Selection
By November 24, 2022 07:41

The Default Risk is Overblown

Continued high yield selloffs throughout September and October have put increasing pressure on credit investors. Spreads have blown out to around to 650 bps, which gives an implied default rate 8.6% at the time of writing (Figure 1), approaching the 10% level seen during the Global Financial Crisis. However, there are good reasons why the selloff may not translate into a default event of a similar magnitude to the GFC. Taking advantage of unprecedentedly low interest rates, corporates have termed out their debt, increasing the length of maturities at the same time as borrowing more. Very little is therefore due to be refinanced in the next few years, meaning that interest costs will remain reflective of the pre-inflationary environment and stay low. 

OpinioPro Selection
By November 24, 2022 07:41

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