China and USA
Analysis Economics

Stocks and Bonds on the Washington-Beijing Tension

The US BB section of high-yield bonds enjoys steady recovery as tensions between the US and China mounts. There is still optimism that moderate credit risk in the US market would persist. Yes, we know that the Fed and the US Treasury are resolved to get it to a stable state if there is a need. Also, issuers of these bonds will enhance their credit metrics once there is economic recovery.

The US bond market riskier section is making a continuous recovery. However, Ba/BB descends by 2.9% a year till now and this is a positive move it made on the 23rd of March 2020 from its previous -18%. Using the same metrics, bonds with Baa/BBB ratings are roughly flat a year till now placed side by side its -13% momentary low in March. 

The fall on the prices of corporate bonds at this time occurred due to the global lockdown procedures that resulted in the deepest economic after-war recession. The recovery, on the other hand, is because of the liquidity support provided by the central bank and the outlooks that re-opening of the economies will lead to an extensive rebound sometimes before the year runs out. 

The upcoming market sentiment on the US indices ought to provide some support to the recurring feature. It is expected that the consumer sentiment surveys that would be released at the end of this week will improve a bit compared to the lows it hit in April because nearly all states in the US are gradually retracting their Coronavirus management procedures. 

Regarding Fed support, there are no observations of a significant move. We can safely say the support procedures proclamation made by the Fed in March and April caused a significant price growth in the bond market. However, the US central bank has not physically purchased bonds since after that announcement. 

Nonetheless, there are anticipations for an additional tapering of spread for low-grade investment bonds.

The B bonds of ICE Merrill Lynch indices still plunge by 7.2 percent a year-till-date, whereas the Caa/C bonds still plummet by 19 percent year-till-date.

RENAULT Ratings and the Negative Outlook

Renault ratings fall to Ba2 due to the anticipation of the negative effect the Coronavirus crisis will have on the company’s bond. The credit metrics of Renault will get substantially weaker. The drop will be more noticeable compared to its competitors. 

Renault can only enhance its credit metrics following the earlier Ba1 projected rating it will have by 2022. The Coronavirus had a serious effect on Renault’s credit rating. The risk exposure during their restructuring procedures brought up thoughts about a possible negative outlook.

Renault credit metrics are expected to stay weak by the end of 2020. The altered EBITA margin may potentially fall below -3 percent, whereas any rise in metrics of a bond with Ba1 rating would merely occur in 2022. 

Nonetheless, the announcement of the restructuring plan which targets EUR2bn cost savings by the end of 2022 is handling the low-profit level and is seen as a positive outlook. However, the serious effect of Coronavirus on its credit metrics and the risk of its restructuring decision made us think it has a negative outlook. 

Nonetheless, the company’s proclamation of its plan to partner with Nissan and Mitsubishi can result in a positive outlook because it improves resources’ sharing. Therefore, we continue to maintain our stand Renault’s opportunistic outlook. 

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