In particular, investors in the U.S. junk-bond market are becoming more choosy and less tolerant of debt backing risky takeovers, according to Rick Rieder, global chief investment officer for fixed-income at BlackRock Inc.
Few Defaults
To be sure, some say it’s premature to abandon credit. Improved cash flows aided by U.S. corporate tax cuts and a long runway to refinance debt have pushed the day of reckoning farther into the future. The number of corporate defaults globally fell to a three-year low of 95 in 2017, according to a report Thursday by S&P.
“We’re not yet short credit,” Ken Leech, chief investment officer of Western Asset Management Co., said at a March 27 investor conference.
But change can happen with surprising speed -- and it can be accelerated if the economic climate sours. Some debt sold by Toys “R” Us Inc. traded around 96 cents on the dollar in August 2017, Minerd said, before plummeting to 26 cents a month later when it filed for bankruptcy. Tesla Inc. sold $1.8 billion of debt last August that traded around the par level. Today, its asking price is about 89 cents.
“Collectively, we’ll see more issues like this as we near the tide turning,” Minerd said.
This article was provided by Bloomberg News.