Good afternoon, it is 19th June 2020 and here is your economic and market update from BlackBee.
Today we focus on:
- Graph of the Week: FED begins buying individual Corporate Bonds.
- See below for update on Blackrock: A Dublin Property Investment Portfolio as well as our latest Real Asset PPU with update on Trim Castle Hotel Bond.
Graph of the week: FED begins buying individual Corporate Bonds
The FED announced that starting Tuesday 16th June, it would begin purchasing individual corporate bonds.
Since the crisis began, to support the credit market, the FED has so far purchased approximately $5.5 billion worth of ETFs that buy corporate bonds. The move from the FED has come under some criticism that it is unnecessary since the bond market has been performing relatively well as of recent weeks.
Yields have continued to drop at a consistent and stable rate as investors pour funds into the market, reassured by the knowledge the FED is supporting it.
In response to the criticism, FED Chair Jerome Powell argued that it was a matter of credibility that the FED follows through with what it promises despite already purchasing ETFs, a promise that has led to an inflow of funds to credit markets. However, this latest move could be a sign that the FED is worried about the economy and is essentially a nationalisation of bond markets.
On 20th March yields on investment-grade bonds stood at nearly 4.6%. As of yesterday yields were at 2.17%.
The inflow of funds from investors has seen credit spreads keep tight and borrowing costs at all-time lows for companies – vital in a time where many companies revenues have dried up. As expected, many companies have been in need of funding to weather the downturn.
With borrowing costs so low, some companies have been dipping into the credit market just to shore up their cash balances in case it is needed. The inflow of funds into the credit market comes despite only 49 credit rating upgrades in Q2 2020 compared to 942 downgrades. This gives an extremely low upgrade/downgrade ratio of 0.05. In Q4 2019 this ratio stood at 0.48.
Non-financial business debt in the US has risen to $16.812 trillion at the end of Q1 2020 compared to $16.057 trillion in Q4 2019.
Figures for Q2 are expected to show a further increase in non-financial business debt when released. The FED report released last week showed that non-financial business debt rose at an annualised rate of 18.8% in Q1 2020.
In Q4 2019, the annualised increase in debt stood at a rate of 2%.
At a glance:
- Concern over the UK economy leads the Bank of England to inject a further £100 billion into the economy.
- US jobs report shows a further 1.5 million people apply for benefits as the pace of applications slow but the number of people unemployed remains high.