Search this website. You can use fund codes to locate specific funds

Weekly Credit Insight

Chart of the week: a rise in corporate refinancing is likely

The year started well for primary-market issuers. During the first six weeks of 2020, a strong macroeconomic picture and the reach for yield pushed credit spreads to the lowest level for almost a decade and encouraged firms to tap credit markets in a bid to increase returns for shareholders.

Concerns about an escalation of the US-China trade war and the upcoming US election – and the possibility that the administration’s policies could change – also encouraged corporates to turn to credit markets early on in the year.

The eruption of the pandemic and oil-price shock ushered in an unexpected bout of volatility, liquidity concerns and fear that there would be a material decline in economic activity. In turn, this also put pressure on companies to raise debt in order to improve their liquidity profiles in the new normal of economies in lockdown and changed consumer and business behaviours.

All these factors resulted in elevated issuance in most parts of credit markets this year. While issuance for general corporate purposes should slow for the rest of the year, refinancing is likely to pick up in response to the fact that the market-implied funding rate1 has reached a new low relative to the current funding rate (see figure 1).2

Figure 1. An uptick in refinancing is likely

Source: ICE Bond Indices, as at August 2020.

For now, this is mostly visible in US investment grade, where the differential is at its highest point in almost ten years – a reflection of the convergence in US interest rates with those in the rest of the developed world and strong demand for high-quality credit.

  1. 1As measured by the average yield to worst
  2. 2As measured by the average coupon

More Insights

From Buddha to Bagehot: how global banks are keeping the liquidity flowing
If liquidity is the ineffable essence of being for banks, its absence presents an existential threat.
Biodiversity in focus in EOS’s Q3 Public Engagement Report
Why companies need to stop taking nature for granted
Weekly Credit Insight
The interest-rate sensitivity of credit has increased.
The Meeting Room Webcast: Global Emerging Markets, October 2020
As we navigate the ever-changing landscape of the coronavirus, the Global Emerging Markets team reflect on recent performance, and discuss the outlook for Global Emerging Markets from both a market and portfolio positioning perspective.
Global Emerging Markets positive impact case study: Advantech
Through its IoT business, Advantech contributes to the attainment of the SDGs
The red and the blue – updates from the US, October 2020
In this webcast, Clive Selman, moderates a discussion with colleagues Phil Orlando and Steve Chiavarone to hear their thoughts on the US elections and the impact on 2020’s final quarter and beyond.