“The ballooning edifice of corporate debt securities across the world is of ever lower quality and potentially more dangerous than it was at the outset of the Lehman crisis, the OECD club of rich nations has warned.
“Global issuance of company bonds has doubled to $13 trillion over the last decade and standards have deteriorated dramatically, raising the risk of “fire sales” and a self-feeding chain reaction in times of stress.
““In the case of a downturn, highly leveraged companies would face difficulties in servicing their debt, which in turn, through higher default rates, may amplify the effects,” said a detailed report by the OECD’s corporate finance division.
““Any developments in these areas will come at a time when non-financial companies in the next three years will have to pay back or refinance about $4 trillion worth of corporate bonds. This is close to the total balance sheet of the US Federal Reserve,” it said.
“The share of investment grade bonds with a precarious BBB rating has soared to 54pc from around 30pc in 2008, the report found.
“The OECD said $500bn of investment grade bonds could crash into the junk league within a year of any downturn, amplifying the recessionary damage through a cascade across the financial system. These figures do not include the vertiginous issuance of leveraged loans that so worries regulators in Britain and the US.
“When the dam breaks it can be ugly. Yields on BB-rated bonds in the US surged 800 basis points to over 16pc during the global financial crisis, greatly compounding the credit crunch.
“The volumes then were a fraction of today’s gargantuan issuance…
“The OECD suggested that the easy money climate of recent years may have flattered the ‘interest rate coverage ratios’ of companies and given investors a false sense of security. Higher real rates would expose the fallacy of this in short order.
“The report was written by the head of the OECD’s corporate affairs division, Mats Isaksson, a world expert on company debt.
“It is a meta-study of the known scholarship from central banks and universities across the world. It commands authority and will confirm the worst fears of global regulators.”
“Young Americans have yet another thing to worry about: debt.
“According to figures from the New York Federal Reserve Consumer Credit Panel, Americans ages 18 to 29 had debt exceeding $1 trillion at the end of 2018. It’s the highest debt exposure for this age bracket since late 2007, the start of the global financial crisis.”
“The delay in reaching an agreement on Britain’s scheduled March 29 exit from the European Union is turning into a full-blown economic crisis, the head of the country’s aerospace industry group said on Monday.
“”Today we are able to track the very real economic damage being caused by a poorly managed political process of agreeing the Withdrawal Agreement and Political Declaration,” ADS Chief Executive Paul Everitt said.
“”The continued delay is turning the UK’s political failure into a full-blown economic crisis.””
“Italy and Germany are countries of particular worry, because together they make up about 40% of the eurozone economy, and Germany’s economy shrank in the third quarter and stagnated in the fourth. Italy’s economy is officially in recession, with two consecutive quarters of decline. France’s economy is not doing much better, with only minimal growth of less than 1% compared with same quarter from last year. Things are already looking bleak going forward as well…”
“The South African infrastructure market is in crisis, says financially troubled listed construction and engineering group Aveng.
“Eric Diack, the executive chairperson of Aveng, said yesterday that this reflected the marginal economic growth experienced in South Africa, which was exacerbated by “unprecedented and widespread threats of violence, community unrest and protest action on construction sites which employers (clients) seemingly expect contractors to accept as the new normal”.”
“Concerns that China had imposed an import ban [on Australian coal] flared late last week after a Reuters report said five harbours overseen by Dalian customs – Dalian, Bayuquan, Panjin, Dandong and Beiliang – would no longer allow Australian coal to be cleared. The report cited an unnamed official as the source of the information. Given coal is Australia’s biggest export earner, the news from Reuters sent the Australian dollar tumbling…”
“A Chinese state-owned enterprise from the country’s remote north-west has failed to repay a US dollar bond in Hong Kong, the first offshore default in 20 years…”
“Real estate is the main game in Hong Kong, and as the drop in housing prices nears correction territory, concern is mounting about the toll the downturn will exact on the city’s economy.
“Home values in the world’s most expensive property market have fallen about 9 per cent from their August peak…”
“South Korean exports likely fell the most in nearly three years in February as China demand falters…
“Exports are expected to have contracted 10.8 percent from the same period a year earlier, the third consecutive month of declines and a much sharper drop than January, according to a median estimate of 12 economists. Exports fell 5.8 percent in January.”
“India Inc. is not doing well. The Business Standard reported that the declared corporate results have been unusually poor. The third quarter (Q3) profit results for the current year shows a pattern of slowdown experienced in other countries currently, marked by falling margins.
“In India, the moderation in economic activity manifested itself in lower air passenger traffic, low vehicles sales, smaller capital goods production and in general deceleration of industrial growth. IIP growth and export growth have both been lower than before recently.”
“Indian markets dived on Tuesday after the country’s military aircraft conducted air strikes on militant camps inside Pakistan, escalating tensions between the two nuclear-armed neighbours…
“The confrontation follows the Feb. 14 suicide bombing in Kashmir, when 40 Indian paramilitary police were killed by a Pakistani-based militant group. New Delhi blamed Islamabad, which denies having a role in the attack.”
“As Iran marked the 40th anniversary of its Islamic Revolution, a white-turbaned Shiite cleric at one commemoration targeted President Hassan Rouhani, a fellow clergyman, with this sign: “You who are the cause of inflation; we hope you won’t last until spring.”
“Already lashed by criticism over his collapsing nuclear deal and renewed tensions with the US, the relatively moderate Rouhani faces anger from clerics, hard-line forces and an ever-growing disaffected public that now threatens his position.
““We need someone who creates jobs and firmly pushes the brake pedal on rising prices.””
“Countries one through four on the list of the world’s biggest oil consumers in 2017 are pretty much who you’d expect them to be — the world’s four biggest economies. 1 No. 5 is something else:
“Saudi Arabia has just 33 million people, less than one-fourth as many as Russia, the country just below it on the list. Yes, it’s rich, but its gross domestic product ranks in the high teens worldwide, not fifth. By global standards, then, it clearly uses an inordinate amount of oil.”
“Be careful what you wish for. That’s the phrase haunting the world’s largest investment banks as they lick their wounds after a painful fourth quarter. For years, bankers complained that markets were too calm.
“But when bonds and stocks tumbled in the last few months of 2018, almost all trading divisions suffered. It doesn’t bode well for business if markets stay choppy.”