Here's What Places Global Bond Buyers at "High Risk"
One-fifth of the largest U.S. publicly traded companies are skating on thin ice -- here's why
by Bob Stokes
Updated: January 21, 2021
Investors who are worried that the stock market rally has gone "too far, too fast" and seek a "safe haven" in the bond market may want to think twice.
The reason why is that the credit market appears highly precarious.
First, with rates at historic lows, even a modest rise in rates will rapidly reduce the value of bonds. Indeed, this is already occurring.
Also, our January Global Market Perspective provides more insights into why investors may not want to "diversify" into bonds. Here's a chart and commentary:
According to Bloomberg, there is [a] large cohort of companies that earn less than their total interest expenses. In all, this group comprises one fifth of the largest publicly traded companies and owes a record $2 trillion, 30% more than the total of 2008 and double that of last year. Two household names on the list are Carnival and Exxon Mobil. Cheap credit abetted by Federal Reserve bond buying has kept these firms alive, but there is a reason that analysts refer to them as zombies: "They face insolvency without policy markers' support." So, historically low interest rates and record fiscal and monetary stimulus have not been enough to stem a record number of firms with profits below debt servicing costs.
What's already been stated raises enough red flags, yet you may be also interested in knowing that among U.S. companies with more than $50 million in liabilities, 244 filed for bankruptcy in 2020, the most for a year since 2009. Even so, junk bond yields are at record lows, and yields on ultra-junk, the lowest tranche of junk, are at multi-year lows.
The January Global Market Perspective offered this takeaway:
This epic complacency in the context of burgeoning bankruptcies and zombie companies, places bond buyers at high risk.
Here's an update on that credit market complacency -- reflected in this Jan. 15 headline from U.S. News & World Report:
Bond Market Outlook: Yields Likely to Stay Low in 2021
This complacency extends beyond the borders of the U.S.
Now is the time to get an independent outlook on global bond yields from our Global Market Perspective.
Elliott wave analysis strongly suggests that you will be very glad you did.
Following the link below gets you started.
Enjoy Instant-Access to Professional-Grade Analysis of 50+ Global Markets
Yes, EWI offers such a publication.
It's called the Global Market Perspective, and this monthly is known for its professional-grade analysis. You see, the GMP was once available to only institutional clients.
FYI: The Global Market Perspective is now available to all. Yet, even though the availability status has changed -- the professional-grade level of the analysis has not.
Subscribers enjoy instant access to actionable analysis of Bitcoin and other cryptocurrencies, worldwide equity markets, global rates, forex, metals, energy and much more.
See this actionable analysis for yourself by following the link below.
Mood Riffs: Civil War in Pakistan? Plus, the Art of Vandalism
Our Video Mood Riffs feature goes beyond the markets to examine social and cultural trends. The new episode explains what Pakistan's stock market trend says about the country's civil war prospects, plus brings you a one-of-a-kind take on why we've seen so many cases of art vandalism lately.
Commodity Prices: After 1 Year of Declines, What’s Next?
Commodity prices and emerging markets tend to move together. Watch our Global Market Perspective contributor Mark Galasiewski walk you through a chart of Invesco DB Commodity Index Tracking Fund (DBC) to show how well it's been following its Elliott wave path.
“One of my favorite Elliott wave patterns”
How many euros does one Swedish krona buy? That's not your everyday question -- unless you're a forex trader. Watch European Short Term Update Editor Murray Gunn walk you through a EUR/SEK chart for some useful insights.