Tuesday, February 12, 2019

US high-yield bond sector will not suffer from tighter lending - Julius Baer

US Federal Reserve published the results of the next Senior Loan Officer Opinion Survey on Bank Lending Practices, SLOOS. To the surprise of analysts, the survey showed a slight tightening of credit conditions for commercial and industrial companies. This dynamic is observed at a time when concerns about the effects of rising credit spreads and declining stock indices in the wake of the current phase of the business cycle are growing in the market.

“Tightening financial conditions in the market is usually regarded as the best tool for assessing the business cycle stage in the economy,” says Marius Allenpach, head of debt instruments research at Julius Baer. “In theory, the survey results only increase the negative effect on market and foreshadow a slowdown in lending growth and, as a result, a reduction in capital expenditures and industrial production, while the Fed experts in the document talk about stabilizing the market after a period of very soft their conditions in the sector, that is, they are cautioned against any worries. According to the regulator, “the standards and terms of lending to commercial and industrial companies have remained almost unchanged.” According to my estimates, a change in lending conditions in the market will not adversely affect the high-yielding US bonds.