Companies in developing nations face more than $7 of bond repayments this year for every $1 their governments must return. That’s making investors nervous.
The US speculative-grade default rate rose to 3.2% from 2.7% in the fourth quarter of 2015 and will likely climb to a six-year high of 4.4% this year, as the drop in prices continues to pressure cash flows in commodity sectors, says Moody’s Investors Service.
In one fictitious scenario discussed in a slide presentation dated April 2013, the president would sign a bill into law giving priority to the payment of Social Security, veterans’ benefits, and the principal and interest on government debt.
The school system’s $6 billion of outstanding debt has been lowered deeper into junk by three major credit companies in the last three weeks. The district has to put money into a fund to cover its debt payments on Feb. 15, and it planned to use some proceeds from the delayed deal to “support near-term debt service,” Moody’s said in its Jan. 29 report.
The Treasury said in a statement it expects to issue $250 billion through credit markets during the period, up from an initial estimate of $165 billion.
Holdings of public and private-sector debt under QE climbed to 712.3 billion euros last month, data on the ECB’s website showed on Monday. Of that, 544.2 billion euros was public-sector debt, with 150.5 billion euros accounting for covered bonds and 17.6 billion euros for asset-backed securities.
After the Bank of Japan cut rates below zero last week, yields on more than $7.1 trillion of government debt globally are negative, while yields on U.S. investment-grade and junk bonds are rising to their highest levels in four years.
The worst start for Asian junk bonds since 2008 doesn’t bode well for issuers’ efforts to negotiate some slack on repayment terms.
China’s government is stepping up efforts to ward off a potential financial crisis, warning bank executives that their jobs are on the line unless they control risks and putting restrictions on an increasingly popular way of evading capital controls.
If 65 million residents, or about 5 percent of the population, each took the maximum allowed $50,000 out of China that would wipe out the $3.3 trillion of reserves, Jason Daw, head of Asian currency strategy at the French lender, said in an interview in Singapore. China needs a stockpile of at least $2.8 trillion to cope with a balance-of-payments crisis, Societe Generale estimates based on the International Monetary Fund’s methodology.
Latin America’s largest economy is sinking into its deepest two-year recession in more than a century. That prompted the central bank to refrain from raising borrowing costs last month and encouraged President Dilma Rousseff to unveil a $21 billion package of stimulus lending to shore up investment and prevent further job losses.
“I don’t think that’s the case,” Deputy Chief Cabinet Secretary Hiroshige Seko said when asked in an interview whether BOJ policy making was nearing its limits. “There are other central banks that have introduced lower negative interest rates,” he said. “This is not the last resort.”
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