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On Thursday, the US high-yield market. USA It experienced its biggest increase in two decades. The largest high-yield index funds rose above seven percent, which is extremely powerful for the bond market.
The reason is that the US central bank. USA Now he is starting to buy the best part of the high interest rate market, explains Pål Ringholm, head of analysis for the credit market at Sparebank 1 Markets.
– What comes from the Federal Reserve (Fed) is now so powerful. It’s fascinating to think about what comes next, Ringholm says.
The central bank can spend up to $ 750 billion on bond purchases, and a third of that can go to the secondary market.
Although the recent Fed crisis did not directly affect Norwegian companies, Ringholm has no doubt that this is good news for the high-interest Norwegian market.
“Clearly positive for the Norwegian market”
The high interest rate market is the market term for credit bonds with lower credit ratings than other companies, so-called “junk bonds.” By lending money to less solid companies, you get higher interest rates, which is why Norwegian investors have entered this market in recent years.
After an unusually sharp slowdown in March, the Norwegian high-yield market has increased sharply the week before Easter. Ringholm has no doubt that the market will also rise on Tuesday.
“When it has the biggest recovery in 20 years in the United States, it is clear that it has positive effects for the high-interest Norwegian market,” says the chief analyst.
He makes reservations that there may be other things that could delay the recovery, such as in the oil market, but that the actions taken by the United States Central Bank in isolation are clearly positive for the high-interest Norwegian market.
– This does not prevent the bankruptcies that will undoubtedly occur in Norway, but increases the amount of capital in the markets, and the Norwegian market is largely dedicated to international prices, Ringholm says.
“Sensational”
Ringholm believes that the latest Federal Reserve crisis is surprising, and is supported by Ole André Kjennerud, credit analyst at DNB Markets.
– Previously, the Fed had said that they should not buy corporate bonds at all. Now they have kept all the principles and are doing what is necessary to make sure there is liquidity, says Kjennerud.
An important reason for this is concern for a large number of “fallen angels”.
What credit rating companies get from rating agencies is very important for what they have to pay to borrow money. In the credit market, there is a distinction between BBB- and BB +. Companies that have a BBB rating or better are considered a small risk investment. Companies with a BB + rating or below are called “junk bonds” and enter the high-yield market.
I should buy “fallen angels”
“Fallen angels” is the term for companies that have been downgraded to “junk status,” and in recent years a large proportion of companies have found themselves on the brink of this limit.
– Since the volume of BBB-rated companies at risk of being downgraded is very large, compared to the size of the high-yield market, there will be a very large supply of bonds and credit premiums will increase dramatically, Kjennerud says, adding :
– That is what the Fed is now trying to avoid.
The central bank has said they will buy the debt from companies with a BBB- rating, but that it has been downgraded since March 22. Currently, this only applies to some twenty companies, but there is little doubt that the number will increase.
Whats Next
Unlike Ringholm, Kjennerud is not so sure that the Federal Reserve crisis will escalate in the Norwegian high-interest market.
– In any case, I think that the effect on the mood in the market will be more important, that you see that the Federal Reserve extends more than previously imagined. It reduces the risk that the real economic consequences are too great, which in turn can prevent a recession too deep, says the credit analyst.
Ringholm is now wondering what the Federal Reserve’s next move will be and if it can go so far that it actually not only buys corporate debt, but also buys stocks.
“In Japan, they have been doing this for a long time, making the Japanese state among the biggest owners of various Japanese companies,” says Ringholm, who believes that the market will focus on this opportunity in the future.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We want you to share our cases using a link, which links directly to our pages. Copying or any other use of all or part of the content may only be made with written permission or as permitted by law. For more terms see here.
