A Slowing Recovery, U.S. SME Debt Climbs to 35% of GDP, and the Brewing Threat to High Yield
October 9, 2020 | FIRESIDE CHARTS
The recovery is rolling on as we enter Q4, but momentum has slowed significantly. Employment in particular looks to be plateauing—another 840,000 Americans applied for first-time unemployment benefits last week. Central banks are struggling to spark inflation, and businesses in need of funding have been issuing a massive wave of new debt. High yield fund flows are elevated, but with corporate bankruptcies brewing and U.S. insolvencies projected to hit 57% in 2021, it could prove a risky prospect.
1. What businesses can reopen likely already have, but certain sectors that need to gather large crowds are just going to have to wait for the vaccine. Meanwhile, the recovery has stalled at these economic levels:
Source: Oxford Economics, from 10/8/20
2. Unfortunately, the same applies to jobs…
Source: Arbor Research & Trading, from 10/8/20
3. Are Fannie Mae and Freddie Mac creating a CMBS bubble?
Source: The Daily Shot, from 10/8/20
4. The Fed is not alone in the low inflation trends…
Source: The Daily Shot, from 10/8/20
5. Since states must balance their budgets, tax increases and debt issuance are almost unavoidable unless Uncle Sam comes to the rescue…
Source: The Daily Shot, from 10/8/20
6. The pandemic has “forced” massive debt issuance for U.S. corporations of all sizes…
Source: The Daily Shot, from 10/8/20
7. With Covid-induced bankruptcies already elevated and expected to rise 57% next year, the search for yield is fraught with peril…
Source: BofA Global Research, from 10/9/20
8. Do you still own junk bonds?
Source: S&P Global Market Intelligence, as of 10/5/20
9. How desperate are yield seekers? You can buy a ten-year UST with a 0.76% yield or a Greek 10-year bond with a 0.89% yield. Is the risk difference equal to the yield spread?
Source: The Daily Shot, from 10/9/20
10. Interest rates have been rising in China, giving a bid to their currency, This will make Chinese goods relatively more expensive…
Source: The Daily Shot, from 10/9/20
11. Globally, Covid is accelerating; the new caseload is well north of 300,000/day. The U.S. appears to be starting a third wave with ~50,000 new cases/day.
Source: JHC CCE, from 10/9/20
12. The next wave is infecting many more younger people. Here is Germany. Europe’s second wave is already larger than the first…
Source: The Daily Shot, from 10/9/20
Disclosure: The charts and infographics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be held in client accounts. Past performance is no guarantee of future results.