American corporate bonds, most heavily dragged dow

2022-08-16
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Dragged down by general electric, U.S. corporate bonds are experiencing the worst year in a decade

Sina U.S. stocks news on December 31, Beijing time, the volatility of U.S. stocks became the headlines at the end of this year, but another key financial market, investment grade U.S. corporate instrument operation editor and startup: open the measurement and control box, and the power switch bond is experiencing the worst annual performance since the financial crisis

the securities of General Electric put pressure on both markets because the 126 year old enterprise group suffered huge losses and asset writedowns

GE's share price fell by about 56% in 2018, the fourth largest decline in the S & P 500 index. The decline in GE's $120billion bonds was not that big, but these bonds were one of the main drag factors on the main index tracking the $6trillion investment grade corporate bond market. These bonds have long been the main investment varieties of global fixed income fund managers

General Electric's bonds plummeted by about 14% and performed badly in the bond market. Analysts worry that this may indicate that the overall outlook for investment grade credit will be worse. According to Bank of America Merrill Lynch, the total return of the Department in 2018 was -2.5%, the largest decline since 2008

according to the data of the securities industry and Financial Markets Association, in the 10 years since the outbreak of the financial crisis, American enterprises have enjoyed the benefits of low interest rates. The balance sheet liabilities of enterprises have reached about $9.1 trillion, almost twice the total of $4.9 trillion in 2007

now, the Federal Reserve has gradually tightened its loose monetary policy, prompting investors to reconsider their commitments to these assets. The current trading status of bonds from dozens of former high-quality issuers is no longer investment grade bonds

Kathleen Gaffney, head of diversified fixed income at Eaton Vance, said that as interest rates rise, "weaker links will be exposed."

after GE's share price fell sharply this year, its debt burden is now about twice its market capitalization of $63billion

GE's bonds are not alone in falling out of favor

the bonds of Ford Motor, at&t, kinder Morgan, CVS health, general motors and Verizon were also among the worst performers this year. Among the 20 banks with the worst performance, 14 received BBB rating, the lowest level of investment grade. GE's debt has been significantly reduced to bbb+, only three levels higher than junk bonds, and more than a third of GE's bonds have been at the junk bond level

Monica Erickson, global developed credit portfolio manager of double capital LP, said that when the next economic downturn hits, the bonds most likely to be downgraded to junk grade are expected to become one of the worst performing bonds

she pointed out that at present, about $3trillion of BBB bonds have not been paid, accounting for about half of the investment grade bond market, while 10 years ago, the proportion was only about 20%

she said, "given that the BBB market is worth about $3trillion, it may be difficult to find buyers in the high-yield market of $1.2trillion during the economic downturn." Many fund managers are required to keep only investment grade bonds in their portfolios, so if these bonds are downgraded to junk bonds, they may be forced to sell at a substantial discount

at present, the junk bond market totals $1.2 trillion. If Ge loses its investment grade status, its bonds alone will suddenly account for about 10% of the high-yield bond market

Eriksson said that not all BBB credit ratings will be lowered during the economic downturn. However, "the proportion of the entire (investment grade) market turning to the high-yield bond market may be higher than at any time in history."

Larry cup, the new CEO of General Electric, is trying to restore profits and reduce debt. Ge lost $22.8 billion in the previous quarter, most of which came from the ailing power sector

in order to boost cash, General Electric has reduced its once rich quarterly dividend to 1 cent per share, which will not be able to play its due role. Karp said that General Electric will continue to "urgently" sell assets

so far, in the view of bondholders and credit rating agencies, these efforts are far from enough

in response to a request for comment, a Ge spokesman referred to Karp's statement in the third quarter earnings report and recent media interviews on the debt reduction plan

in the past 13 months, the three major bond rating agencies have lowered the credit rating of General Electric twice. Now, standard & Poor's marks it as "bbb+", and the rod that Moody's drives the pendulum to swing shifts along the axis, which is equivalent to the rating given by Fitch

the price of about $43billion of Ge bonds is less than 90 cents, of which more than $17.5 billion is less than 80 cents. The lowest is the US $2billion perpetual bonds issued in 2015. The current quotation is 63 cents per share, with a yield of 17.5% and a coupon rate of 4.1%

in contrast, according to the data of Bank of America Merrill Lynch, the average yield of BBB bonds is 4.7%

the cost of insuring Ge bonds against default is close to the highest level since the financial crisis. However, the biggest risk faced by bond investors is that if corporate credit fundamentals deteriorate, they will not be able to sell their bonds

"you have many sellers, but no buyers," said a Ge bond investor. Therefore, "we have not sold the debt we hold."

the investor said, "you see people exiting one after another, but there are no buyers, so you will see a large number of transactions decline. Everyone will hear such a question from their boss or customers: 'how many shares of General Electric do you own?'"

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