Notes: Valuations are based on ICE BofA corporate bond indices, as well as JPM EMBI indices for emerging US dollar-denominated sovereign markets. ![]() Sources: Bloomberg, Refinitiv Datastream and ECB calculations. (percentage of months since January 1999 where lower yields/spreads have been recorded) With further compression of spreads being seen across most asset classes in recent months, concerns have emerged about possible exuberance in some corporate market segments (Chart B). Corporate spreads are back to pre‑pandemic levels and close to the historical lows that were observed in the run-up to the global financial crisis. However, corporate bond valuations are also very high in relative terms, as usually measured by the difference between the yields on high and low-risk corporate bonds or the difference between corporate bond yields and risk-free rates. Those low yields are, in part, a reflection of the low level of interest rates, as central banks have reduced policy rates and used asset purchases to compress term premia on government bonds. After spiking in March 2020, US corporate bond yields have fallen to historical lows across rating classes. That is particularly true of lower-rated segments. In panel b, the latest observations relate to 14 January 2022 (earnings per share weekly) and Q4 2021 (interest coverage ratios quarterly).Ĭorporate bond valuations are close to historical highs, despite those lingering vulnerabilities. In the right-hand chart in panel b, the 98th percentiles of the two interest coverage ratio distributions (not shown in the chart) stand at around 130% and 390% for end-2019 and the latest data respectively. Panel b shows the realised earnings per share and interest coverage ratios (interest payments relative to earnings) of firms in the S&P 500, with dots representing the median, bars showing the interquartile range (25th to 75th percentiles) and whiskers indicating the 2nd and 98th percentiles. Notes: Panel a shows the numbers of non-financial corporations in different regions which were upgraded and downgraded (i) in 2020 and (ii) in the period since end-2019, with the latest observations relating to Q1 2022. (USD for earnings per share percentages for interest coverage ratios) Moreover, while earnings per share have increased on average, the ongoing pandemic has had a scarring effect, leaving some firms with weaker earnings, despite public support measures (see, for example, panel b of Chart A, which looks at firms in the S&P 500).Ĭhanges in corporate credit quality during the pandemicĪ) Changes to the long-term ratings of firmsī) Earnings per share and interest coverage ratios for firms in the S&P 500 However, credit ratings have not yet fully returned to pre-pandemic levels, as there is uncertainty about longer-term prospects in some sectors – particularly those that have been more affected by the pandemic. In the course of 2021, corporate credit quality (as assessed by credit rating agencies) recovered somewhat, with US firms, for instance, seeing more upgrades than downgrades. Vulnerabilities increased markedly, with firms around the world experiencing a wave of credit rating downgrades (Chart A, panel a). Published as part of the ECB Economic Bulletin, Issue 2/2022.Ĭorporate vulnerabilities increased particularly strongly around the world at the onset of the coronavirus (COVID-19) pandemic and – despite the subsequent recovery – could still be a cause for concern in some parts of the market. Compare Standard and Premium Digital here.Īny changes made can be done at any time and will become effective at the end of the trial period, allowing you to retain full access for 4 weeks, even if you downgrade or cancel.Prepared by Livia Chiṭu, Magdalena Grothe and Tatjana Schulze ![]() ![]() You may also opt to downgrade to Standard Digital, a robust journalistic offering that fulfils many user’s needs. If you’d like to retain your premium access and save 20%, you can opt to pay annually at the end of the trial. ![]() If you do nothing, you will be auto-enrolled in our premium digital monthly subscription plan and retain complete access for $69 per month.įor cost savings, you can change your plan at any time online in the “Settings & Account” section. For a full comparison of Standard and Premium Digital, click here.Ĭhange the plan you will roll onto at any time during your trial by visiting the “Settings & Account” section. Premium Digital includes access to our premier business column, Lex, as well as 15 curated newsletters covering key business themes with original, in-depth reporting. Standard Digital includes access to a wealth of global news, analysis and expert opinion. During your trial you will have complete digital access to FT.com with everything in both of our Standard Digital and Premium Digital packages.
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