The emission of bonds by companies has grown steadily in the heat of policies of low interest rates. The debt that has increased the most has been that of BBB bonuses, placed by companies that are considered as issuers of quality but that are within the limit of what is considered as a speculative bond or junk bonus.
Emissions in this category have exceeded The $ 10 billion (millions) in the last five years. The economic downturn and the tightening of monetary policies threaten to lower the rating of thousands of companies whose bonds would lose potential buyers, What could make this market collapse.
"It is one of the issues that worries us most for this 2019", explains Emilio Ortiz, investment director of Mutuactivos. "The amount of BBB emissions has been huge. Now, with the rise in rates by the Fed, they will see how their financial costs are becoming more expensive. Additionally, downward revisions of revenue prospects will be produced, which can cause rating agencies to degrade many of these issuers to the junk bond category, "he says.
Between 2014 and 2018 US companies issued $ 1.42 trillion in BBB bonuses, according to data provided by Dealogic. In the same period, Chinese companies placed US $ 2.87 trillion; the Germans, US $ 0.77 billion, and the Japanese, about $ 0.96 billion. In total, emissions in this category in the last five years exceed $ 10 trillion, which shows how the amount of bonuses with BBB rating has increased exponentially. According to the Bloomberg Barclays index, only in the USA these assets represented in 2018 49% of the total corporate bonds, far from the 34% that they supposed 10 years before.
The threats to this type of company come from two sides: the financial and the sales. In the first, it is already a reality that the age of the zero types has come to an end. A change that has begun the United States, but little by little other economies will be added. For years, this monetary policy has allowed this type of company to be financed at historically low rates, but this is over. In addition, the slowdown in the world economy will force many companies to review their revenue forecasts for the coming years, a process that has already begun in the U.S. Many companies have begun to cut their forecasts before the end of the fiscal expansion of the Trump Administration and the effects of protectionist policies.
These two factors will reduce the margins of companies that have BBB credit rating and some of them will see how they degrade them in the rubbish bond category.
"Most investment funds and pension plans have a mandate that allows them to invest in bonds of investment grade companies [la calificación crediticia que comienza en BBB]. For this category there is a broad buyer market, but if many of these firms lower their rating they will see that there are not enough buyers, which will cause the value of these bonds to collapse, "explains Miguel Ángel García, investment director of Diaphanum . "We in this asset prefer to the issuers of maximum quality, because those that are one step below offer a return that does not compensate for the risk assumed," he says.
Low default rates
Experts warn that while so far default rates have been at very low levels – according to Moody's it reaches 2%, compared to its historical average of 5% -, high performance bonds are a double-edged sword as well Current prices do not reflect the default risk. While so far they have been an asset that has allowed to obtain an extra profitability, in a climate of slowdown it is to predict that the rates of default increase.
The threats facing the market are high. S & P's Andrew Soutch forecasts a lower growth in the United Kingdom and points to possible Brexit results as an obstacle for the British and Eurozone economies. This adds to a potential failure of the negotiations between the U.S. and China, which would end up accelerating the halt of the world economy. The first effects of the tariff policy have already begun to feel with Beijing growing at its lowest level since 1990.