US corporate debt offers an oasis investors – Economíahoy.mx

By Jose Luis de Haro (New York) – 23:00 – 08/05/2016

• the low profitability of sovereign bonds requires looking at other investment alternatives.

a large purchases of bonds by the European Central Bank and the Bank of Japan will join the stimuli announced this week by the Bank of England. While the Federal Reserve continues debating a rate hike this year, the debt of US companies has become attractive to foreign investors due to the lack of profitability in fixed income assets.

With more than 10 billion in sovereign debt recording a negative return as a result of massive ingestion of assets by the Bank of Japan and the European Central Bank fixed income has become a difficult market in generating returns. Not only Hahuriko Kuroda stimuli or Mario Draghi, who experience negative rates of deposits and other monetary formulas seeking to rekindle inflation, macerated this situation. The hangover left by the referendum in favor of Brexit in the UK has ground to a halt divergence that the Bank of England and the Federal Reserve planned earlier this year in his feat to normalize their policies and gradually increasing the price of money.

However, the decision of the British electorate to seek divorce their partners in the European Union not only decimates plans Mark Carney and his boys, but has generated collateral consequences, such as falling profitability American 10-year bond, which reached historical lows touched in the weeks after the vote in favor of Brexit.

If the Bank of England has been forced to relax its monetary policy again this week, lowering rates to 0.25 percent historical -mínimos for this institution this side of the Atlantic, after hearing the weakling economic growth in the second quarter and positive job creation data published on Friday, Janet Yellen is at a crossroads to raise rates this year. The most optimistic pose an increase of 25 basis points in December, a minority that fails to surpass those who believe that the next round of monetary nut will not arrive until well into 2017.

In these circumstances, where the safer sovereign debt does not produce money and where American equities remains more costly, foreign investors seem to have found their particular oasis in US corporate debt. According to the estimates deck Nathaniel Rosenbaum, fixed income strategist at Wells Fargo Securities, foreign holders of American corporate debt have risen by 5 percentage points so far this year, suggesting that 40 percent of this market debt is in the hands of international investors. A historical figure.

“The US corporate credit market remains the most liquid and highest yields in advanced economies, which gives you a competitive advantage when compared with other markets,” Rosenbaum justified. This expert recognizes that there is a “desperate” search for yield, especially by investors from countries with negative interest rates, but influences that “not all foreign buyers of US corporate debt behave the same.”

In this sense, it is important to note that Asian investors, especially from Taiwan, have become major stakeholders by American business credit, although European holders continue to multiply by five the number of Asian . That is why any divestment by investors of the Old Continent “would generate a wide gap” and cause a price drop sharply, according to estimates by experts bandied about Wells Fargo.

Today, with the profitability of the US bond at 1.6 percent, is not strange to think that the break, especially American sovereign debt to corporate debt should continue. Both the Bank of Japan and the ECB and the BoE will be forced to increase their stimulus while the Fed will tied to its standby mode.

If investors from 24 countries with greater number of US Treasury bonds in the portfolio decided turn 10 percent of its assets in sovereign debt to corporate bonds, would be talking about 380,000 million dollars breaking business credit market patrio in the coming months. Among the following possible interested in these assets, Wells Fargo mentioned investors from countries such as Australia, Denmark, Italy or Spain, where the appetite for American corporate debt has soared in the last year.

euphoria also faces challenges in the medium term. The purchase of corporate bonds the ECB has become popular that many US companies to issue debt denominated in euros, which is known in financial jargon as reverse yankees. At the same time, the explosive growth rate in Taiwan is also inviting some American companies to issue debt in Taiwan dollars (known as Formosa bonds).

In addition, not all foreign investors are left to delight the profitability of American corporate debt. Economic pressures that some countries face, especially in the Middle East or China, forced to divest this asset class.

Other news

sponsored Content