MyStratWeekly – December 6th 2022

Topic of the week: US high yield overview

• The expected slowdown in the United States should lead to an increase in payment defaults. Moody's forecasts a default rate of close to 10% next year in a moderately pessimistic scenario;
• Monetary easing during the pandemic has been used to improve the financial health of high yield issuers. The net leverage is relatively low and the debt maturity profile is not a major financial constraint;
• However, banks are less inclined to lend, which will affect the lower ratings first (below CCC);
• Valuations nevertheless remain attractive as a fair risk premium is priced in by markets.

Market review: Financial markets ignore markets

• Fed hints at 50 bp hike in December;
• After Powell’s speech, equity shot up whilst yields, spreads decline;
• Breakeven inflation rates move higher;
• Bullish run continues on credit.

Stéphane Déo's podcast

• Will the dollar continue to fall?

Chart of the week

For the first time since at least 2000, the global yield curve has inverted. This reflects investors' concerns about global growth following the strong monetary tightening carried out by central banks to fight against far too high inflation.
Short rates, integrating monetary policy expectations, rose stronger and faster than long rates to become higher than the latter.
This is not a good signal for global growth.