By Kate Duguid
NEW YORK (Reuters) – Stock market figures have taken hold-of-the-market securities, but another key financial market, US corporate debt, is turning In the worst annual yield since the financial crisis a decade ago.
General Electric The values of Co (N 🙂 have been weighing in both markets, since the 126-year-old conglomerate founded by Thomas Edison has suffered surprising losses and written attitudes.
GE shares have dropped to around 56 percent in 2018, the fourth largest decline in the S & P 500 index (). Bonds of $ 120 billion dollars are not downloaded, but the titles, which have long been a basic element for fixed income managers worldwide, are one of the main drag points of the Main indices that control the corporate debt sector of 6 billion dollars.
GE's bonds have crashed around 14%, a monumental low yield in terms of the bond market. Analysts worry that this could indicate worse progress for investment credit in general. According to the Bank of America / Merrill Lynch index, the total profitability of the 2018 sector is negative by 2.5 percent, the biggest drop since 2008.
US companies showed low interest rates in the decade since the crisis, leaving corporate balances to leverage around $ 9.1 billion in debt, almost double the total of 4.9 trillion dollars of 2007, according to the Securities Industry and the Association of Financial Markets.
Now, the Federal Reserve's gradual tightening of its monetary policy makes it easier for investors to rethink their commitment to these assets. The bonuses of dozens of previous high quality issuers are already listed as if they were no longer a degree of investment.
As interest rates increase, "the weakest links will be exposed," said Kathleen Gaffney, director of a diversified fixed income at Eaton (NYSE 🙂 Vance.
Following the sharp breakdown of this year in GE shares, the debt burden currently exceeds double its market capitalization of $ 63 billion.
MAINTENANCE PLENTY OF COMPANY
GE debt is not alone in the dog's house.
Bonuses of Ford Motor Co. (N :), AT & T Corp (N :), Kinder Morgan (N :), CVS Health (N :), General Motors Co (N 🙂 i Verizon Communications (N 🙂 was also ranked among the weaker artists as the year ended. Of the 20 lowest performers, 14 were triple-B, the lowest level of investment grade. GE's debt has been reduced to BBB +, which is only three steps above the rubbish, and more than one third of GE bonds are already trading at spam levels .
Bonds with the most likely to decline in junk are expected to be the worst performers when the next economic recession occurs, as explained by Monica Erickson, global credit portfolio administrator developed at DoubleLine Capital LP.
He noted that currently there are about 3,000 million three-way bonds, which include approximately half of the investment qualification market, which only spent 20 per cent a decade ago.
"With a triple B market of about $ 3 billion, finding a buyer in the high-yielding market of $ 1.2 billion could be difficult" in a slowdown, he said. Many fund managers are required to retain only a reverse quality debt in their portfolios, so that they could be forced to sell at steep discounts if the debt is reduced to scams.
Currently, the scrap market is 1.2 trillion dollars. If GE lost its investment grade status, these bonds alone would eventually represent 10 percent of the high performance market.
However, not all triple-B credits will be downgraded if there is a recession, "you will probably have a higher percentage of this change (change of investment) in this high-performance market Historically, "Erickson said.
WHAT IS OWN?
GE's new CEO, Larry Culp, is struggling to restore profits and reduce debt after the company lost 22.8 billion dollars in the last quarter, mainly due to its defective unit of power.
To increase cash, he has reduced his quarterly dividend, once again, to only one penny per share, and Culp said that GE would continue to "urgently" sell assets.
These efforts have so far been reduced to the owners of the bonds and the credit rating agencies.
In response to a comment request, a GE spokesman referred to the statements of Culp in his report of third quarter results and in recent media interviews on debt reduction plans.
The three main valuers of bonds have reduced GE credit ratings twice in the last 13 months. It is now labeled as "BBB +" by Standard & Poor's, with equivalent qualifications of Moody's and Fitch.
Approximately $ 43 billion of sports deficit are worth sporting prices of less than 90 cents, with more than $ 17.5 billion sold for less than 80 cents. The lowest, a perennial bond of 2,000 million dollars sold in 2015, is currently cited at around 63 cents and now produces 17.5 percent versus the coupon rate of 4.1 percent.
In comparison, the average yield of B triple-B reaches 4.7%, according to data from the BAML index.
The cost of securing GE's bonds against delinquency is almost the highest since the financial crisis. However, the biggest risk for bond investors is not being able to sell their stakes if the credit foundation of the company gets worse.
"You have many sellers and non-buyers," said an GE debt investor who asked not to be named for compliance reasons. And so "we have not yet sold our debts."
"You've seen people go to the exit, and there is no buyer, so you get a great drop," said the investor. "Everyone is asking questions from their boss or their client asking" how much GE do you have? "