Corporate Bond Update
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In view of the spread of the delta variant of the coronavirus, after reassessing the pace of the reopening of the U.S. economy, investors have given up the debt of some of the U.S. companies most affected by the new coronavirus.
The prices of bonds issued by cruise lines, movie theater operators, and retailers all fell last week as more companies delayed plans to return employees to the office due to Delta upgrades, while other companies chose to implement vaccination requirements for their employees.
Cinema operators and beneficiaries of the meme stock boom AMC EntertainmentThe US$1.5 billion worth of bonds sold last year to help it weather the first wave of Covid-19 fell from nearly 90 cents to about 85 cents on Friday, and it was still slightly lower on Monday.
The price of office supplies company Staples’ $1 billion bond maturing in 2027 fell from more than 97 cents against the U.S. dollar to 94.5 cents on Friday, and then rose slightly above 95 cents this week.
The bond prices of cruise ship operators Royal Caribbean and Viking Cruises have also continued to fall recently.
Financial conglomerates Wells Fargo and BlackRock have joined the ranks of tech giants Apple and Amazon to postpone the time when employees are required to work. Back to office. United Airlines also responded to tensions with the spread of Delta variants through mandatory requirements All employees are vaccinated In the fall.
Brandywine Global Investment Management’s portfolio manager John McClain said: “As Covid has risen, investors are beginning to feel nervous.” “Investors should pay attention to the UK because their recent experience with the peak in cases driven by the Delta variant is A leading indicator. Given the low summer liquidity, additional volatility may occur.”
The trends in the various industries affected by Covid indicate that investors are reducing their bets on the pace of recovery after the economic downturn last year.
Continue to sell on Monday, plus Oil prices fall Knock into the debt of the energy company.
However, analysts and investors such as McLean believe that the recent unease has not significantly changed the outlook for the corporate bond market. Companies that need new funds can still get new funds, and the economic recovery is still underway, although the pace is slowing.
“Delta Air Lines is an obvious obstacle, but we are basically still on the road to recovery,” said Bank of America analyst Oleg Melendiev.
Data from the ICE BofA index shows that the extra yield or “spread” required by investors for holding riskier high-yield bonds higher than that of U.S. Treasury bonds has risen from a low of 3.16 percentage points in early July to about 3.5 percentage points. percentage point.
The increase in the risk premium is particularly pronounced at the lowest-rated level in the corporate bond ladder. The triple-C bond spread rose from a low of 5.88 percentage points last month to 6.75 percentage points on Monday.
The rise of Delta has also affected the debt of companies that are already facing pressure on the supply chain.In an earnings conference call for Itron last week, CEO Thomas Deitrich stated that the energy and water utility meter and sensor manufacturer is enduring “supplier factory disruptions, logistics restrictions, shortages of raw materials and components due to Pandemic“.
Itron’s $460 million bond maturing in 2026 fell from a face value of 102 cents to less than 90 cents after a conference call. Since then, it has fallen back to just under 93 cents.