Credit as an asset class did phenomenally well in the pandemic, writes James Norrington for Investors’ Chronicle.
With struggling companies kept on life support by government support schemes, investors have seen a compression in credit spreads with falling disparity in yields between safe government debt and corporate bonds across the quality spectrum.
The article cites Credit Benchmark credit risk data on Oil & Gas companies and General Retailers to highlight the disparity between credit quality and share prices.
“Credit Benchmark’s ratings have default risk at 51 basis points (or 0.51 per cent) likelihood for large UK energy businesses. That’s worse than the 42 basis points (bps) in June 2020 at the most uncertain stage of the pandemic but still better than UK large cap stocks as a whole (64 bps). In the United States, where confidence for the oil & gas industry had fallen even more drastically, views on credit are no longer worsening.”
Investors’ Chronicle, June 29, 2021.
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