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US investment-grade maturities rise

February 18
4:49 AM 2016

The US investment-grade companies will have to honor bonds maturing during 2016 and 2020 to the tune of $864 billion bonds. However, the path ahead for the investment-grade companies for refinancing their debt is positive as observed by the global rating agency Moody's Investors Service. Investors' preference to investment-grade issuance is flat over speculative-grade issuance. 

The $864-billion bonds maturing from 2016 through 2020 is a record high for the US investment-grade companies. The investment-grade companies are strong and have stable credit quality so that they can get sufficient access to capital markets to refinance their debt. The preference of investors for high credit quality companies is relatively flat, when compared with speculative-grade issuances.

The investment-grade bond issuance rose 42.4 percent in 2015. This indicated investors' preference to companies with high credit quality. There's slightly higher company-specific refunding risk for the credits rated Baa3, one step above speculative grade. And this represents 12 percent of investment-grade maturities versus 10 percent in 2015, according to Moody's Investors Service.

Out of the 12 percent Baa3 debt, Moody's has $8 billion from energy companies on review for downgrade. This may potentially further down to speculative-grade. Companies rated Baa3 stable with the highest amount of debt maturing in 2016-20 include Reynolds American with $5.9 billion, Kinder Morgan Energy Partners with $4.7 billion and Penske Truck Leasing Co with $4.5 billion.

North American investment-grade credits are available at cheaper valuations, according to Morgan Stanley. Investors, who want a risk-reward ratio, should explore longer duration BBB rated bonds and sold by non-financial companies, as analysts said in a report in Bloomberg. Morgan Stanley's analysts further said that investment-grade bonds were attractively valued and lower-beta opportunities are within fixed income.

Tiina Siilaberg, a Moody's Vice President and Senior Analyst, said: "Refunding risk remains relatively low for these issuers, both in terms of market access and company-specific risk." Owing to the latest high volatility in the financial markets, investment-grade bonds are gaining momentum.

Forbes further observes that the recent spread of investment-grade bonds and the US treasury is widening. This is indicating buying opportunity for high quality investment-grade bonds. US corporate bonds rated AA have compiled a total return of 1.13 percent. BBB rated bonds returned -0.22 percent. 

"Despite slowly increasing interest rates, the markets remain receptive to investment-grade issuance. Maturities rise, but refunding risk stays low with market receptive to investment-grade debt," added Natalia Gluschuk, an analyst and co-author of the report.

The global economy and related risk assets are frightful this year so far. Analysts didn't find any fault with the global economy, but highlight the problems in monetary policy experiments. The high asset price values and fiscal incompetency are the cause of concern, opine analysts.

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