Equity is the residual value of the firm and will be sensitive to changes in cash flow. As equities go, so should corporate spreads especially for highly levered (high yield) firms. The sell-off in equities this year is closely correlated with the increases in high yield spreads. The same concerns about margin, leverage, and earnings hit both equity and corporate bondholders.
Looking backwards at default rates will not help investors. It looks like defaults were all put on hold as the economy improved, low rates still dominated, and equities remained strong, but the world has now changed. Defaults during the mini-recession are likely under a stagflation environment, so spread repricing should be expected.
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