20170105-穆迪服务-Rating_Revisions_Dispute_Thin_Spreads_28页_1mb

Moody's Weekly Market Outlook Summary

Core Content

This document provides a detailed analysis of the current state and outlook for credit markets, focusing on high-yield and investment-grade bonds, rating revisions, and market behavior. It includes insights from Moody's Capital Markets Research team, emphasizing the relationship between equity market performance, credit spreads, and corporate defaults.

Main Points

1. Credit Market Overview

• High-Yield Bond Spreads:

  • The high-yield bond spread has narrowed significantly, reaching 404 bp on January 4, 2017, the lowest since September 2014.
  • However, this narrowing is attributed more to market sentiment and liquidity than to improved credit fundamentals.
  • A low VIX index (12.0) has contributed to the support of high-yield bond prices, but if market conditions worsen, the spreads may widen again.

• Investment-Grade Bond Spreads:

  • The investment-grade bond spread is expected to remain close to its recent level of 122 bp by year-end 2017.

• Default Rates:

  • The US high-yield default rate was 5.6% in November 2016 and is forecast to fall to near 3.9% by the second half of 2017.
  • However, the number of downgrades has increased significantly, reaching 68% of all rating changes in Q4-2016, which is a concern for credit quality.

2. Rating Revisions and Market Behavior

• Downgrades vs. Upgrades:

  • In Q4-2016, downgrades accounted for 68% of all credit rating changes for US high-yield companies, a sharp increase from previous quarters.
  • The number of upgrades dropped by 48% from Q3-2016 to Q4-2016, indicating a deteriorating credit environment.
  • Fundamentally driven upgrades decreased by 46%, while downgrades rose by 1%, suggesting a lack of underlying improvement.

• Historical Context:

  • The 1998-2000 equity rally led to a significant increase in high-yield defaults, despite strong equity performance.
  • The high-yield bond spread widened from 338 bp to 522 bp during that period, showing a strong inverse correlation with the breadth of equity rallies.

3. Market Data and Trends

• Equity Performance:

  • The S&P 500 saw a strong rally in Q4-2016, particularly in the financial sector, with a 20.5% increase.
  • However, this rally may not be sustainable if economic growth and inflation expectations fail to meet expectations.

• Inflation Expectations:

  • Inflation expectations are rising, with the 5-year breakeven inflation rate reaching 1.86% in January 2017.
  • Despite this, dollar strength could dampen inflationary pressures.

• Bond and Equity Indices:

  • High-yield corporate debt in the US rose 17.1% in 2016, with a 1.8% increase in Q4.
  • The high-yield spread has narrowed to under 400 bp, but the outlook for further narrowing is uncertain due to credit risks.

4. The Week Ahead

• US Economic Reports:

  • Employment Report (Dec): Expected to show 180,000 nonfarm payrolls and a 4.7% unemployment rate.
  • Trade Balance (Nov): Forecast to widen by -44.7 billion, with dollar strength affecting export competitiveness.
  • Factory Orders (Nov): Projected to decline by -2.3%, though core durable goods orders are expected to rise by 5.0%.
  • Import Price Index (Dec): Expected to rise by 0.8%, reflecting increased commodity prices.
  • Producer Price Index (Dec): Likely to increase by 0.3% overall and 0.1% core, signaling the end of a disinflationary period.
  • Retail Sales (Dec): Forecast to rise by 0.4%, with a 0.5% increase excluding automobiles.
  • Business Inventories (Nov): Projected to increase by 0.3%, with the inventories-to-sales ratio at 1.37, indicating improved corporate outlook.
  • Consumer Sentiment (Jan Preliminary): Expected to rise to 99.0, the highest in over a decade, driven by post-election optimism.

• Europe Economic Reports:

  • France: Foreign Trade (Nov): Expected to show a slight contraction in the trade deficit, with exports marginally stronger than imports.
  • Euro Zone: Retail Sales (Nov): Likely to slow to 0.2%, following a strong 1.1% increase in October.
  • Industrial Production: Expected to rise by 0.4% m/m in November, with potential for a 0.5% increase depending on German results.
  • Germany's Manufacturing PMI: Slid to 54.3 in November, indicating a cooling in output growth.
  • France, Spain, and Italy: Expected to show improved industrial production, offsetting Germany's weakness.

Key Information

• High-Yield Bond Spread:

  • Narrowed to 404 bp in January 2017, the lowest since September 2014.
  • May widen if net downgrades persist and equity markets overvalue.

• Credit Fundamentals:

  • Despite the narrowing spreads, credit fundamentals have not improved significantly.
  • The number of downgrades has increased, indicating deteriorating credit quality.

• Equity Market Impact:

  • Strong equity performance has supported high-yield bond prices, but may not be sustainable.
  • Equity rallies can help companies improve credit quality through capital injections and asset divestitures.

• Inflation and Monetary Policy:

  • Inflation expectations are rising, but dollar strength could limit their impact.
  • The Fed's projected rate hikes may not materialize, which could affect credit market performance.

• Economic Outlook:

  • The US and Europe are expected to show modest growth, but with underlying risks.
  • The spread between high-yield and investment-grade bonds is a key indicator of credit market health and expectations.

Conclusion

Moody's analysis highlights the disconnect between the narrowing of high-yield spreads and the underlying credit fundamentals. While the equity market rally has supported bond prices, the increasing number of downgrades suggests that credit quality may still be under pressure. The document also provides a forecast for key economic indicators, emphasizing the importance of monitoring both market behavior and fundamental trends in assessing credit market risks.