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As central banks break the junk debt barrier, investors will follow

davfordavfor
edited May 2020 in Other Investing
It makes sense to think that the dividing line traditionally used by investors will become more blurry now that the Fed and ECB have crossed it.....
...the latest move may well turbo-charge the departure from ratings-defined investment processes, especially the cliff-edge division between high-yield and high-grade debt.

“What active managers have been doing since the financial crisis is increasing the flexibility of their mandates,” said James Vokins, head of investment-grade UK credit at Aviva Investors.

...central bank support could be a powerful impetus for more flexibility, especially as yields, or returns, on high-grade debt tumble further and junk markets swell...
image

https://reuters.com/article/us-health-coronavirus-ratings-analysis/as-central-banks-break-the-junk-debt-barrier-investors-will-follow-idUSKBN22I1WW

Comments

  • Sven
    Think this amounts to improve the liquidity of junk bonds. Shoring up this sector does not keep those that at going bankrupt, i.e. oil shade industry.
  • WABACWABAC
    I just don't see how a real price can be attached to any stock, bond, or other instrument, in this environment.

    is cash trash? Not if we're deflating.
  • CrashCrash
    Good point. I'd never have thought to express it that way. We are so far from where "fundamentals" would put us, it's insane. We are light years from a supply-and-demand Market. Everything not only being propped-up, but well-greased. Of course, coronavirus lockdowns and the effects could not be predicted.
  • WABACWABAC
    Crash said:

    Good point. I'd never have thought to express it that way. We are so far from where "fundamentals" would put us, it's insane. We are light years from a supply-and-demand Market. Everything not only being propped-up, but well-greased. Of course, coronavirus lockdowns and the effects could not be predicted.

    The pandemic could not have been predicted. I think I read somewhere that the transmission rate has been greater than was experienced during the Spanish flu.

    But the level of corporate debt was well known. And there are several indicators out there telling us that the market has been in thin air for some time.

    Maybe there could have been some sort of "normal" correction if there had been some other trigger. But one of the major reasons for stocks' ascent has been easy money fueling stock buybacks. And the money just keeps getting easier . . . for some.
  • CrashCrash
    +1
  • Old_JoeOld_Joe
    Given the overwhelming psychological component of market "valuation" I don't believe that it is possible to predict how a market should be "valued" in the face of the present "unknowns".

    There are the "known unknowns" of a major worldwide pandemic with an indeterminable end point, an election with the potential to replace a dangerously unstable president, a worldwide oil market in freefall, and steadily increasing animosity between the United States and China... actually, increasing animosity between the United States and almost every other major nation.

    It may be arguable to classify the White House as an unknown because it is known that they will pursue the most self-serving, ignorant or stupid option available in any situation requiring experience, intelligence or leadership.
  • AnnaAnna
    What is the most probable consequence to the value of the US dollar? (If this is a dumb question, let me know so I can quit taking my imagination too seriously.)
  • Derf
    TP may hold more value than a buck going forward !
    Derf
  • CrashCrash
    noted. agreed...
  • ronorono
    Howdy folks,

    Hi Anna, hope this finds you safe and well.

    You asked the big question Where goes the dollar? We know that most of the stock market valuations are being kept inflated by the Fed not unlike a balloon full of holes attached to a huge air hose. How many zombie companies? Zombie industries? How about zombie countries? Full faith and confidence is the 'value' of the dollar. Let your imagination ponder that. How much faith do you have in our government in Washington? Confidence?

    Now we've come to grips with that - what are our options? We're still the intl reserve currency even if everyone scrubs their hands more after touching a greenback than if they were in an ICU unit.

    Most of the world pretty much hates us right now other than the more charitable types who pity us.

    Right now things will plod along at light speed due to the plague. Everything rides on November and the election. If Biden wins and the Senate flips, and there may be hope. Otherwise, I'd rather go back to Vietnam. Sorry.

    Peace

    Rono
  • royal4
    edited May 2020
    Is it really about earnings anymore? So much money chasing stocks it doesn't matter what happens they are bid up. I mean 14% unemployment and not even a shrug. Strange times indeed. ADD: Looks like stock market inflation to me... too much money chasing too little stocks.
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