20171207-穆迪服务-High-Yield_Borrowing_May_Slow_Following_2017_s_Boom_28页_1mb

Moody's Weekly Market Outlook Summary

Core Content

Moody's Analytics Weekly Market Outlook highlights the potential slowdown in high-yield borrowing activity following a significant 2017 boom, while emphasizing the importance of corporate profits and credit risk premia in shaping 2018's market dynamics. The report also reviews key economic data and forecasts for the U.S., Europe, and Asia-Pacific, focusing on credit markets, default rates, and macroeconomic indicators.

Main Views

High-Yield Borrowing and Credit Spreads

• High-Yield Borrowing May Slow: After a record year in 2017, high-yield borrowing is expected to slow in 2018 due to rising interest rates and the potential impact of the loss of full interest expense deductibility.
• Credit Spreads Narrowed in 2017: The composite high-yield bond spread dropped from 610 bp in 2016 to 384 bp in 2017, driven by lower default rates, improved corporate profits, and rising industrial commodity prices.
• Speculative-Grade Yields Declined: Despite higher benchmark Treasury yields, speculative-grade bond yields fell to 5.77% in 2017, down from 7.48% in 2016, due to spread narrowing.

Default Rates and Profit Outlook

• Default Rates Declined in 2017: The U.S. high-yield default rate fell to 3.2% in October 2017, down from prior levels, though the outlook for 2018 remains uncertain.
• EDF Metric Stagnated: The high-yield EDF (Expected Default Frequency) metric has not resumed its earlier decline, raising concerns about the potential for a default rate increase in 2018.
• Profit Growth is Positive: Pretax operating profits are expected to grow by 4.8% in 2018, up from 4.1% in 2017, supporting a favorable outlook for credit risk premia.

M&A and Bank Loan Programs

• M&A Dominates High-Yield Borrowing: M&A financing accounted for 53% of new high-yield bank loan programs in 2017, indicating a strong reliance on mergers and acquisitions to fund growth.
• M&A May Surge in 2018: With the potential for a record high in M&A activity, the report suggests that this could offset the decline in high-yield borrowing, assuming the default outlook does not worsen.
• Interest Expense Deductibility Risk: The loss of full deductibility of interest expense could increase the after-tax cost of debt, especially during earnings downturns, potentially deepening the slump in credit markets.

Key Information

U.S. Outlook

• Government Shutdown Risks: Intensifying talks over a potential government shutdown are unlikely to have a major economic impact, with limited fiscal costs.
• Fed Policy Outlook: The Fed is expected to raise the fed funds rate by 25 basis points in December, bringing the target range to 1.25%–1.5%. The real rate is expected to be near 0%.
• Economic Data Highlights:
  • Consumer Price Index (CPI): Expected to rise to 3.2% in November, up from 3.0% in October.
  • Unemployment: Likely to remain stable at 4.3% for the three months to October.
  • Industrial Production: Expected to contract by 0.3% m/m in the Euro Zone for October, with Germany's output likely to fall by 0.5% m/m.

Europe Outlook

• Euro Zone Industrial Production: Expected to contract by 0.3% m/m in October, with Germany's output likely to fall by 0.5% m/m.
• Inflation and Unemployment: Inflation is expected to rise, while wage growth remains subdued, making the BoE's policy decisions more challenging.
• Spain's Growth: Factory growth rose by 0.6% m/m in October, pushing the yearly rate to 4.1%, indicating upside risk for Spanish growth.

Asia-Pacific Outlook

• China's Activity: November data is expected to show improvement, with retail trade rebounding after a holiday-induced slowdown in October and manufacturing output growing.
• India's Inflation: Rising food and fuel prices are pushing inflation toward 4%, with the Reserve Bank of India likely to maintain monetary policy unchanged until mid-2018.
• Japan's Sentiment: The Tankan Survey for Q4 is expected to show a slight pullback in sentiment due to cooler manufacturing conditions, though the mood among manufacturers was strong in the September quarter.
• Australia and South Korea: Both regions show positive labor market trends, with Australia's unemployment rate expected to remain at 5.4% and South Korea's at 3.6%.

Conclusion

• 2018 Outlook: High-yield borrowing is expected to slow, but the combination of high-yield bond offerings and new bank loan programs could still grow by 5% annually if the default outlook remains stable.
• Key Risks: A significant jump in default rates, driven by a stagnation in the EDF metric, could challenge the positive outlook for credit risk premia.
• Market Triggers: M&A activity, inflation expectations, and the Fed's forward-looking approach will be critical in shaping the credit market environment in 2018.

Summary of Key Indicators