FX168 Financial News (Europe) News On Wednesday (May 8), in the European market, gains stalled this month due to lack of catalysts. US stock index futures declined slightly, while US Treasury yields and the US dollar rose. Later, Federal Reserve Governor Lisa Cook (Lisa Cook) will speak.
Contracts for the Nasdaq 100 Index and the S&P 500 Index, which are mainly technology stocks, fell 0.2%.
Benchmark Treasury yields rose three basis points to 4.49%, while the dollar strengthened for the third day in a row.
After the earnings season is over, investors are now uncertain what will happen next after the S&P 500 rises 3% in May.
On Tuesday, Minneapolis Federal Reserve Chairman Neel Kashkari (Neel Kashkari) said that due to stubborn inflation, the Federal Reserve may need to abandon interest rate cuts this year.
Hugh Grieves, fund manager of the Premier Miton US Opportunities' fund, said, “We are now experiencing the end of the earnings season, and the market is falling into complacency.”
“The economy is' OK ', interest rate cuts are still being discussed, and oil prices are falling. Unfortunately, it's not a stable balance.”
The Federal Reserve's more prudent approach has brought it out of sync with the ECB, which has already begun to implement an easing policy. #美联储政策转向 #
On Wednesday, the Riksbank began a cycle of interest rate cuts, easing the policy for the first time in eight years.
Further reading: How far is the global “wave of interest rate cuts”? The second most relaxed developed country has seen the latest technical outlook analysis of the US dollar index, the euro, and the British pound
Earlier, the SNB decided in March to cut interest rates beyond its peers.
The default rate of US companies rose to nearly 6%, Xiaomo: Don't worry!
J.P. Morgan's Nelson Jantzen offered a calming thought to investors who were shocked by the rise in the US corporate default rate to nearly 6%.
In one measure, roughly half of the corporate debt included in the default rate isn't exactly a problem for investors, at least not right now.
Jantzen, head of US high-yield and leveraged loan strategy, said that in another analysis, the speculation-level default rate at the end of March was actually close to 3%.
The difference stems from what happens when a company tries to avoid bankruptcy by entering a bad debt exchange.
According to issuer-weighted metrics widely used in the industry, this swap could cause all of the company's debts to be treated as default.
But bad debt swaps probably don't mean the company can't pay all interest. In nominal-weighted metrics, debt used in bad exchanges is included, but only the amount actually exchanged is included.
In fact, bad debt swaps are becoming increasingly popular. As a way for troubled companies to protect the value of their bonds and loans by extending the term of specific debts, holders usually agree to discount or lower prices.
While such swaps still represent a default event, investors are betting on better returns than borrowers trying other solutions, such as filing for bankruptcy.
The Moody's Method
Analysts at Moody's Ratings, which has been setting credit standards for Wall Street for more than a century, said the US default rate reached 5.8% at the end of March, the highest level since 2021.
This is an issuer-weighted calculation that includes the possibility that bonds and loan agreements will stimulate accelerated payment of all debts when the issuer defaults.
This approach treats troubled exchanges as bankrupt or defaulted.
“Our default rate will be higher,” said Julia Chursin, vice president of corporate finance at Moody's. “But if you rule out struggling exchanges, you're ignoring a large portion of the market.”
J.P. Morgan notes that the gap in default rates shown by the two methods is the highest on record.
Some portfolio managers say they must explain why to investors.
Investor preferences
Bank of Bahrain (Barings) portfolio manager Michael Best (Michael Best) said most investors prefer to opt for face-weighted calculations because they reflect actual loss of return rather than the number of companies that have defaulted.
“You could default a small bad company for a number of reasons,” he said. “If your name is something everyone holds by default, then this is even more important for large corporate fixed income investors.”
What is certain is that no measure of a company's default rate can fully reflect the pressure on the company.
The rise of bad debt swaps has also led more companies to default multiple times and eventually file for bankruptcy, even after at least one debt restructuring.
It also means a decline in recovery, especially when these bad debt swaps pit lenders against each other.
If the recovery declines sharply, a healthy default rate could still cause more losses to lenders.