Riskier U.S. corporate debt reportedly has regained some of its allure to investors as crude-oil prices tumbles
“At least 10 speculatively rated groups — companies deemed riskier than their investment-grade counterparts by the major rating agencies — borrowed through bond markets on Tuesday or were poised to complete marketing roadshows later this week for such sales,” the Financial Times reported.
The energy sector is a key component of the junk bond market, representing 14 percent of Bank of America Merrill Lynch’s high-yield US corporate bond index, the FT explained, noting how crude has recently plunged.
“Subdued volatility has been key to the continued drip of new high-yield bond sales this year, with bankers advising clients that now is the time to access markets if needed before interest rates head higher. The Vix volatility index, Wall Street’s so-called fear gauge, has languished near decade lows. Similar measures of credit volatility have remained below historic averages,” the FT explained.
“The pipeline opened up,” Tom Stolberg, a portfolio manager with Loomis Sayles, told the FT. “We haven’t had a huge equity market sell-off or anything that’s blown up to rattle investors.”
“Aside from weakness in commodity related [bond] issues, the market is relatively stable,” said David Daigle, a portfolio manager with Capital Group. “A stable Treasury market, supportive equity market and . . . volatility that remains relatively well-behaved have created a great backdrop for high-yield debt.”
However, other respected economic gurus caution that investors are blissfully ignoring dangerous threats.
For his part, Nouriel Roubini wonders if investors are whistling past the geopolitical graveyard, ignoring all the “black swans” on the economic horizon.
“Geopolitical risks are continuing to proliferate,” he explained in an article for Project Syndicate.
“The populist backlash against globalization in the West will not be stilled by Macron’s victory, and could still lead to protectionism, trade wars, and sharp restrictions to migration,” wrote Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates.
“At the same time, Russia has maintained its aggressive behavior in the Baltics, the Balkans, Ukraine, and Syria. The Middle East still contains multiple near-failed states, such as Iraq, Yemen, Libya, and Lebanon. And the Sunni-Shia proxy wars between Saudi Arabia and Iran show no sign of ending,” explained Roubini, who was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration.
In Asia, U.S. or North Korean brinkmanship could precipitate a military conflict on the Korean Peninsula. "And China is continuing to engage in — and in some cases escalating — its territorial disputes with regional neighbors," said Roubini, who has worked for the International Monetary Fund, the Federal Reserve, and the World Bank.
“Despite these geopolitical risks, global financial markets have reached new heights . So it is worth asking if investors are underestimating the potential for one or more of these conflicts to trigger a more serious crisis, and what it would take to shock them out of their complacency if they are,” he said.
(Newsmax wires services contributed to this report).
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