(Bloomberg) — An upgrade of Ford Motor Co.’s credit rating to investment grade is signaling a shift in corporate priorities as companies shore up their finances in the face of a potential recession.
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The US automaker this week clinched a blue-chip grade from S&P Global Ratings, a move that lifts Ford’s debt out of junk and stands to shrink a global benchmark of high-yield bonds by $46.8 billion, the most since the mid-2000s. To some on Wall Street, that’s just the beginning.
“There’s still more to come,” said Matt Brill, head of North America investment-grade credit at Invesco Ltd. “We’re more likely to see improving credit fundamentals, even as the economy slows — rather than the opposite, which is what a lot of people are concerned about.”
That’s a complete turnaround from early in the pandemic, when credit assessors delivered the most brutal wave of corporate-debt downgrades on record. Already, credit upgrades this year have decreased the amount of so-called fallen-angel bonds — or debt that was cut from investment-grade to junk — to $142 billion from as much as $344 billion in 2020, according to ICE BofA index data analyzed by Bloomberg.
And even as the focus settles on the risk of a recession as major central banks keep interest rates elevated, strategists at Bank of America led by Yuri Seliger see few indications that the number of fallen angels will rise again. Less than 0.5% of the investment-grade universe trades at spreads wider than their junk-rated peers, they wrote in a note earlier this month.
“The fallen angel pipeline seems to be quite thin,” unlike in previous economic cycles, said Maria Staeheli, a senior portfolio manager at Fisch Asset Management. “This time around, it feels like more companies are able and willing to take credit friendly action to keep IG ratings.”
Barclays Plc strategists led by Bradford Elliott, in fact, expect $70 billion to $90 billion of debt to be lifted from junk to investment grade — a type of upgrade that dubs the debt as rising stars — in 2024. Coty Inc., Cellnex Telecom SA and British retailer Marks & Spencer Plc are all in line for potential rising-star upgrades, according to the firm.
Representatives for Coty, Cellnex and Marks & Spencer didn’t respond to requests for comment.
The strategists, meanwhile, see only $20 billion to $40 billion of debt going from a high-grade score to high-yield next year. Others, though, are still bracing for pockets of weakness.
The increase in positive rating activity comes ahead of what’s expected to be a much more difficult time, Bloomberg Intelligence analyst Joel Levington said in an interview Tuesday. Still, bond graders are betting there’s enough cushion in their ratings to absorb downside, he said, adding that “there’s a lot of questioning of that logic.”
In Europe, Barclays strategists including Craig Nicol expect a net €15 billion ($15.9 billion) of fallen angels in 2024 as the “inexorable rise in interest costs as debt is refinanced will put incremental pressure on finances.”
Rising Star Boost
Rising star upgrades come with a clear set of benefits. S&P raised Ford’s rating to BBB- from BB+ on Monday, with a stable outlook. After this week’s move, Ford will be able to to borrow debt at lower rates and access deeper pools of capital, making it easier to fund operations.
The difference between yields on BBB rated debt — the lowest tier of investment grade — and BB rated debt, the highest-quality junk, is about 1.46 percentage points, according to data compiled by Bloomberg.
The upgrade will also yank Ford’s bonds out of fallen-angel and junk indexes. The carmaker accounts for almost a fifth of ICE BofA’s dollar-denominated fallen angel index, making it by far its largest component. It is also one of the largest pieces of the euro-denominated gauge, with a weight of more than 4%.
The fallen angels indexes will only reflect the change at the end of November due to rules on cutoff dates, according to a representative for the Intercontinental Exchange, Inc., which publishes the indexes.
And Ford is only the latest example. Occidental Petroleum Corp., which was another fallen angel in pandemic downgrade cycle, shed its junk status in May after an upgrade from Fitch. The promotion followed a similar move by Moody’s in March. Packaged-food maker Kraft Heinz Co. also climbed out of junk status after a second upgrade from junk.
Representatives for Ford, Occidental and Kraft didn’t respond to requests for comment.
“During this cycle — and coming from the pandemic — companies haven’t had time to lever up,” said Shanawaz Bhimji, head of corporate bond research at ABN Amro Bank NV. “We basically have a limited environment for fallen angels.”
(Updates with detail on Ford’s rating change in 12th paragraph. An earlier version corrected a reference to the rating move in chart note.)
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
