Fed Extends Support to Some High-Yield Issuers · Analytics does not provide investment advisory...

WEEKLY MARKET OUTLOOK

APRIL 9, 2020

CAPITAL MARKETS RESEARCH

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Fed Extends Support to Some High-Yield Issuers

Credit Markets Review and Outlook by John Lonski Fed Extends Support to Some High-Yield Issuers

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The Week Ahead We preview economic reports and forecasts from the US, UK/Europe, and Asia/Pacific regions.


The Long View Full updated stories and key credit market metrics: April-to-date’s $102 billion of US$-denominated investment-grade bond offerings tops April 1999’s month-long total of $99 billion.


Ratings Round-Up A Single Upgrade in the U.S., None in Europe


Market Data Credit spreads, CDS movers, issuance.


Moody’s Capital Markets Research recent publications Links to commentaries on: Default risk, credit stress, rate cuts, optimism, coronavirus, corporate credit, spreads, leverage, rate sensitivity, sentiment, VIX, fundamentals, next recession, liquidity and defaults, cheap money, fallen angels, yields, inversions.


Click here for Moody’s Credit Outlook, our sister publication containing Moody’s rating agency analysis of recent news events, summaries of recent rating changes, and summaries of recent research.

Credit Spreads

Investment Grade: We see the year-end 2020’s average investment grade bond spread under its recent 213 basis points. High Yield: Compared with a recent 937 bp, the high-yield spread may approximate 650 bp by year-end 2020.

Defaults US HY default rate: According to Moody's Investors Service, the U.S.' trailing 12-month high-yield default rate jumped up from February 2019’s 2.8% to February 2020’s 4.5%.

Issuance For 2019’s offerings of US$-denominated corporate bonds, IG bond issuance rose by 2.6% to $1.309 trillion, while high-yield bond issuance surged by 55.8% to $432 billion. In 2020, US$-denominated corporate bond issuance is expected to grow by 16.7% for IG to $1.527 trillion, while high-yield supply may sink by 24.4% to $327 billion.

Moody’s Analytics Research

Weekly Market Outlook Contributors: Moody's Analytics/New York: John Lonski Chief Economist 1.212.553.7144 [email protected] Yukyung Choi Quantitative Research Moody's Analytics/Asia-Pacific: Katrina Ell Economist Moody's Analytics/Europe: Barbara Teixeira Araujo Economist Moody’s Analytics/U.S.: Ryan Sweet Economist Michael Ferlez Economist

Editor Reid Kanaley

Contact: [email protected]

http://www.moodys.com/wco

mailto:[email protected]


2 APRIL 9, 2020 CAPITAL MARKETS RESEARCH / MARKET OUTLOOK / MOODYS.COM

Credit Markets Review and Outlook

Credit Markets Review and Outlook By John Lonski, Chief Economist, Moody’s Capital Markets Research, Inc.

Fed Extends Support to Some High-Yield Issuers The Federal Reserve’s performance in reaction to the COVID-19 recession has been superb. There is no reason why a deliberate shutdown of U.S. business activity in response to a public-health crisis should be allowed to bankrupt large numbers of individuals, businesses, and local governments. Both the containment of inflation expectations and a firm dollar exchange rate supply the Fed with the latitude to do whatever it takes to prevent a financial crisis and an extended economic slump. According to Fed chairman Jerome Powell, the forthcoming economic recovery can be robust. And the Fed has shown every intention of seeing that will be the case.

Fed Steps Up Backing of Small Business Loans To facilitate bank lending to small businesses, the Fed has instituted a Paycheck Protection Program Liquidity Facility. The PPPLF will supply loans to financial institutions that originate Paycheck Protection Program loans, where the face-value of PPP loans will serve as collateral.

The Fed announced that it will purchase of up to $600 billion of loans to small and mid-sized businesses that are made through the Main Street Lending Program. Eligible business borrowers now include businesses with no greater than 10,000 employees and annual revenues for 2019 that were no greater than $2.5 billion.

Fed Intends to Offset Risks Stemming from Reduced State & Local Government Tax Revenues The Fed established a Municipal Liquidity Facility that will loan up to $500 billion to states and municipalities. The facility will purchase up to $500 billion of short-term notes directly from U.S. states and the District of Columbia, U.S. counties with a population of at least two million residents, and U.S. cities with a population of at least one million. State-level participants may use the proceeds to support smaller counties and cities.

Expanded TALF Covers Leveraged Loans and Commercial Mortgages The Term Asset-Backed Securities Loan Facility, or TALF, promotes the offering of asset-backed securities. TALF loans funds to issuers of eligible ABS. On April 9, the Fed expanded the range of assets that are eligible collateral for TALF. In addition to student loans, auto loans, credit card loans, and certain small business loans, TALF-eligible collateral will now include the triple-A rated tranches of both outstanding commercial mortgage-backed securities and newly issued collateralized loan obligations. Because CLOs often consist of leveraged loans, the issuance of such business loans now receives valuable indirect support from the TALF program.

Fallen Angels Get Unprecedented Help The Fed revised its Primary Market Corporate Credit Facility program by granting eligibility to once investment-grade companies that were subject to “fallen angel” downgrades to speculative-grade after March 22, 2020. However, eligibility requires that the fallen-angel’s new high-yield credit rating be no lower than Ba3. The Primary Market Corporate Credit Facility will purchase eligible bonds and loans at issuance.

Finally, the Fed expanded eligibility for its Secondary Market Corporate Credit Facility, which purchases outstanding corporate bonds and bond ETFs in the secondary market. In addition to investment-grade corporate bonds, this facility may purchase bonds that were subject to a fallen-angel downgrade after March 22, provided that the current speculative-grade rating is no lower than Ba3. However, the facility cannot purchase investment-grade bond obligations of a depository institution or a depository-institution holding company.




Of special importance is how the secondary-market facility may now purchase the shares of ETFs that hold high-yield corporate bonds. Quoting April 9’s directive, “the preponderance of ETF holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.”

Fed’s Action May Further Narrow Corporate Bond Yield Spreads In immediate response to unprecedented support from the Federal Reserve, the iShares iBoxx high-yield corporate bond ETF soared higher by 6.21% from its prior close as of the early afternoon of April 9. This high-yield bond ETF has advanced by 19.6% from its low of March 23, 2020 and is down by a relatively shallow 4.5% since the end of 2019.

The Fed’s April 9 announcement also sparked a rally among investment-grade bonds. For example, the iShares iBoxx investment-grade corporate bond ETF advanced by 3.44% from its prior close during the early afternoon of April 9. The widely followed investment-grade bond ETF has advanced by 24.0% from its low of March 19, 2020 and is now up by 1.8% from year-end 2019’s close.

After soaring from a January 13, 2020 low of 315 basis points to a March 23 high of 1,100 bp, the Bloomberg/Barclays high-yield bond spread has since narrowed to April 8’s 871 bp. As inferred from a statistical relationship that starts with December 1994, the 871 bp high-yield bond spread favors a 7.5% midpoint for December 2020’s U.S. high-yield default rate.

High-Yield EDF Predicts a Higher Default Than Does the High-Yield Spread However, the Moody’s Analytics average expected default frequency metric for U.S./Canadian high-yield issuers tells a somewhat different story. After rapidly ascending from a January 6, 2020 low of 4.15% to a March 18 high of 10.62%, the average high-yield EDF subsequently eased to April 8’s 9.52%. As inferred from a statistical relationship that begins with January 1996, a 9.52% average high-yield EDF metric favors an 8.4% midpoint for December 2020’s high-yield default rate.

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Figure 1: Recent High-Yield Bond Spread of 871 bp Favors a 7.5% Midpoint for December 2020'sU.S. High-Yield Default Ratesources: Bloomberg, Moody's Investors Service, Moody's Analytics




EDFs are not a function of high-yield bond prices. Rather, an issuer’s EDF, or expected probability of default over the next 12 months, will be greater (i) the lower is the market value of an issuer’s net worth, or the difference between the market value of an issuer’s business assets less the value of its liabilities, and (ii) the greater is the volatility of the market value of an issuer’s business assets. All else the same, the EDF, or default risk rises, as the issuer’s share price declines or the issuer’s debt increases. Thus, the combination of a declining share price and increased indebtedness can quickly escalate default risk, especially if the market value of an issuer’s assets are highly volatile.

It should be added that a steep enough increase in default risk can drive equity prices significantly lower. Few developments can depress a stock price like a substantially higher probability of default. To the degree the Fed’s current corporate credit facilities lessen default risk, the equity market’s downside risk will be reduced.

The U.S. equity market’s pronounced rebound from its March 23 low has helped to stabilize corporate credit. After plummeting by 35.1% from February 19, 2020’s record high to March 23’s low, the market value of U.S. common stock has since rebounded by 25% as of April 9’s afternoon trading. Nevertheless, the market value of U.S. common equity is still a deep 15% under year-end 2019’s mark.

High-Yield Bond Spread Shows Far Less Anxiety than the VIX Meanwhile, the moving five-day average of the VIX—a proxy for the perceived downside risks facing equities—has sunk from March 20’s record high 74.4 points to April 9’s 45.0 points. However, the latter is far above its historical median of 15.8 points and reflects considerable anxiety regarding the depth and duration of corporate earnings’ ongoing contraction.

One of the notable features of recent financial market stress has been the failure of corporate bond yield spreads to broaden to widths ordinarily associated with ultra-high readings for the VIX. Though March 2020’s average VIX of 57.6 points was the third highest ever, the accompanying 785 bp average for the Bloomberg/Barclay high-yield bond spread was well above the spread’s 1,627 average when VIX’s month-long average previously exceeded 50 points.

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Recessions are shadedU.S. High-Yield Default Rate: %Average Expected Default Frequency (EDF) of U.S. High-Yield Companies: %

Figure 2: Average High-Yield Expected Default Frequency (EDF) Metric Now Favorsan 8.4% Midpoint for December 2020's Default Ratesources: Moody's Investors Service, NBER, Moody’s Analytics




In the past, the high-yield bond spread averaged 1,534 bp when the VIX was between 40 and 50 points. By contrast, the recent high-yield bond spread was a much narrower 871 bp.

For prior episodes that showed a surprisingly narrow high-yield bond spread given an elevated VIX, financial markets tended to improve. However, given COVID-19’s unknown course, it is far too risky to assume that the VIX will decline and equities will rise over the coming months.

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Figure 3: An Ultra-High VIX Preserves the Risk of a Wider Than 1,500 Basis Points High-Yield Bond Spreadsources: CBOE, Moody's Analytics

The Week Ahead



The Week Ahead – U.S., Europe, Asia-Pacific

THE U.S. By Ryan Sweet of Moody’s Analytics

Fed Adds to Its Tools as Lender of Last Resort for the Economy

The Federal Reserve on Thursday rolled out additional actions in an effort to stabilize financial markets and be sure liquidity problems do not morph into insolvency issues. The Fed announced that it will provide $2.3 trillion in loans aimed at supporting businesses and households as well as state and local governments. The Fed activated the Main Street Business Lending Program that had been previously announced and authorized by the CARES Act. This facility will purchase up to $600 billion in loans to small and mid-sized businesses. Firms seeking Main Street loans must commit to reasonable efforts to maintain payrolls and retain workers.

The Fed also altered the Primary and Secondary Market Corporate Credit Facilities—the PMCCF and SMCCF—as well as the Term Asset-Backed Securities Loan Facility known as TALF. These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury. One notable change to the PMCCF is that the Fed will purchase high-yield debt.

Fed Chairman Jerome Powell on Thursday morning stressed that the central bank is focused on the lending facilities and that other policy innovations, including yield curve control and average inflation targeting, are not a priority. However, the Fed is essentially doing subtle yield curve control via the combination of its forward guidance and quantitative easing. Powell brushed aside a question about whether QE will stoke future inflation. This was a concern when the Fed used QE during the Great Recession, and it was not then inflationary. There is no reason to expect it to be inflationary this time, either. In fact, the Fed is likely worried about disinflation rather than inflation.

In his comments, Powell took the Fed’s normal approach and did not provide advice on fiscal policy, but he did say that those people and businesses impacted by COVID-19 should be made whole. This is important as the number of people filing for unemployment insurance benefits continues to climb rapidly. New filings totaled 6.606 million in the week ended April 4, less than our forecast for 7.1 million but more than the consensus of 5.5 million. There was an enormous upward revision to new filings in the prior week, totaling 219,000. For perspective, this revision is roughly equivalent to what weekly initial claims were before COVID-19.

Initial claims have totaled 16.78 million over the past three weeks. Interpreting claims gets a little fuzzy now that the CARES Act has expanded the definition of who may file for benefits to include some who are not unemployed. It is important to note that these millions of jobs have not been destroyed, and fiscal and monetary policy needs to do everything to make sure the jobs are still there when we get on the other side of COVID-19. We expect it will take years to recover.

Next week The key data next week will be initiail claims for unemployment insurance benefits, retail sales, housing starts, industrial production and the Philadelphia and Empire State manufacturing surveys.

https://www.economy.com/economicview/chapter/1/United-States-Monetary-policy

The Week Ahead



EUROPE By Barbara Teixeira Araujo of Moody’s Analytics

Most Governments Have Already Gone Big The coming week will again be dominated by developments related to the spread of COVID-19. On the upside, there are increasing signs that the virus has already peaked in some European economies, especially in Italy and Spain, the two hardest-hit countries. Denmark, Austria, the Czech Republic, and Norway have considered relaxing their lockdown restrictions as the numbers of cases and deaths in those countries has stabilized. But this is not the case everywhere. Cases and deaths are soaring in the U.K., though this is not surprising given that Britain was one of the last countries in Europe to enact stay-at-home measures. Infections are also rising rapidly in Germany, France and Belgium, which suggests that containment measures in those countries will last for longer.

We think that most European governments have already gone big in their COVID-19 fiscal packages, but there is scope for additional announcements in countries such as Italy and Spain. Also, chances are high that euro zone policymakers will finally push through a coordinated fiscal package following yet more disappointment this week. There is the option of precautionary European Stability Mechanism credit lines for euro zone countries, which could be combined with the European Central Bank’s Outright Monetary Transactions. But member states could also put in place a common euro zone debt-management office—such as a ‘beefed-up ESM’, which would mutualize borrowing costs—or they could go for the option of issuing so-called ‘coronabonds’.

We are betting on the first option, as political hurdles to the other two are many. But reaching a consensus on the ESM credit lines is also not straightforward. The main stumbling block is the conditions attached to them. ESM credit lines usually come with strings attached, which suggests that countries making use of them would likely be required to enact austerity measures once the crisis is over. But such conditions are a red line for Italy, since years of austerity have made the idea of the ESM politically toxic. On the other side of the spectrum, the Netherlands remains adamant that growth-boosting and balanced-budget conditions are attached to any loans provided by the ESM. We think consensus eventually will be reached, with chances being that the Netherlands will give in.

The week will be light on the data front. We will get final March inflation data for all euro zone countries and the currency area itself. We expect these to confirm that inflation eased across the board at the end of the first quarter—the euro zone’s headline CPI likely cooled to 0.7% y/y from 1.2% in February. But we should guard against reading too much into the slowdown. Base effects in oil prices had always been set to depress the headline at the end of the first quarter as Brent prices halved over the month and dropped to their lowest in 18 years. This caused energy prices to plunge further into deflation—the decline was the steepest since the summer of 2016. But a drop in the core rate is also expected to have shaved from the headline, and here too the results shouldn’t be surprising. Services inflation probably nosedived. Behind this, in our view, were prices in the travel-related subsectors given that the tourism industry ground to a halt over the month as most European countries closed borders and went into lockdown.

The pandemic has overhauled the 2020 outlook for euro zone inflation. We expect core and noncore inflation will each plunge in coming months. First, downside risks for core inflation have risen sharply because several euro zone countries enacted lockdown and quarantine measures for their citizens, which is taking a toll on consumer spending as well as on industrial production. This decline in activity will result in softer price pressures across the board, though the transportation, tourism and entertainment industries will bear the brunt of it. Granted, disruptions to worldwide supply chains suggest that the pandemic is not only a demand but also a supply shock, which is usually inflationary. This means that prices for some products could rise as firms face shortages. But our view is that the demand shock will take the upper hand, depressing overall inflation pressures.

Second, the recent slump in oil prices will depress noncore inflation. Brent prices on Thursday were reading at $34 per barrel, down from a high of $68 at the end of January. The drop was initially caused

The Week Ahead



by the coronavirus demand shock, but Saudi Arabia launching a price war against Russia only compounded this effect. This means energy inflation will remain deep in deflation in coming months. That most other commodity prices have also fallen sharply since the end of February will only add to the downside pressures in noncore inflation. We thus expect the euro zone CPI headline to sink below zero by the summer and remain subdued and below target throughout next year. Although we do pencil in a sharp recovery in the second half of this year, we expect that the increase in supply will be faster than that in demand given that people will lose their jobs, companies will refrain from investing, and precautionary savings will be raised. This should keep a lid on overall prices.

ASIA-PACIFIC By Katrina Ell of Moody’s Analytics

China’s March Data Should Show Improvement, but Crisis Is Not Over China’s suite of March activity data are due for release and there is much more uncertainty than usual surrounding the data. The February data dump was a resounding disappointment, as industrial production, retail trade and fixed asset investment all recorded double-digit falls in annual terms. Improvement is expected in March since factories reopened and some workers returned to cities to resume employment after the extended break. But the Chinese economy remains far from returning to pre-COVID-19 levels. For instance, while shopping centres have reopened, there is a resounding fear of COVID-19 contagion, so consumption remains subdued. And while factories may have reopened for the most part, supply chains remain in disarray.

The March quarter national accounts are due for release. We forecast GDP to have contracted by 4.6% y/y, following the 6% expansion in the December quarter. Full-year GDP is expected to come in at -0.1%, an unprecedented record low for China. This is an indication of the severe economic toll COVID-19 has dealt to China’s economy directly through the first half of 2020, and with the spread of COVID-19 globally, manufacturing and exports will remain subdued even if the virus remains contained in China.

Unemployment rates are forecast to spike in South Korea and Australia in March as widespread dislocation from COVID-19 hurt consumer-facing industries including tourism. Australia was likely particularly hard hit with the education, retail and hospitality sectors experiencing deep pain from government-mandated closures from later in March. While Australia’s unemployment rate will further rise in April, as job losses have intensified, some relief has come from the government’s wage subsidy program, which enables workers to retain their job and some income, even while the economy is in hibernation.

Key indicators Units Moody's Analytics Last

Wed @ 7:45 a.m. France: Consumer Price Index for March % change yr ago 0.7 1.6

Wed @ 8:00 a.m. Spain: Consumer Price Index for March % change yr ago 0.1 0.7

Wed @ 10:00 a.m. Italy: Consumer Price Index for March % change yr ago 0.1 0.3

Wed @ 1:00 p.m. Russia: Industrial Production for March % change yr ago -1.2 3.3

Thur @ 7:00 a.m. Germany: Consumer Price Index for March % change yr ago 1.4 1.7

Thur @ 10:00 a.m. Euro Zone: Industrial Production for February % change 0.1 2.3

Fri @ 10:00 a.m. Euro Zone: Consumer Price Index for March % change yr ago 0.7 1.2

The Week Ahead



Key indicators Units Confidence Risk Moody's Analytics Last

Mon @ 10:00 p.m. India Consumer price index for March % change yr ago 2 6.4 6.6

Tues @ Unknown China Foreign trade for March US$ bil 2 22.5 -7.1

Tues @ Unknown China M2 monetary aggregates for March % change yr ago 2 8.9 8.8

Wed @ 1:30 p.m. India Foreign trade for March US$ bil 2 -12.5 -9.9

Wed @ 2:00 p.m. Indonesia Foreign trade for March US$ bil 2 -2.4 2.3

Thurs @ 11:30 a.m. Australia Unemployment rate for March % 2 6.4 5.1

Fri @ Unknown Singapore Nonoil domestic exports for March % change yr ago 2 -8.9 3.0

Fri @ 9:00 a.m. South Korea Unemployment rate for March % 3 4.3 3.3

Fri @ 12:00 p.m. China Retail sales for March % change yr ago 2 -4.1 -20.5

Fri @ 12:00 p.m. China Industrial production for March % change yr ago 2 -3.8 -13.5

Fri @ 12:00 p.m. China Fixed asset investment for March % change yr ago YTD 2 -15.2 -24.5

Fri @ 12:00 p.m. China GDP for Q1 % change yr ago 2 -4.6 6.0


CAPITAL MARKETS RESEARCH The Long View

d The Long View April-to-date’s $102 billion of US$-denominated investment-grade bond offerings tops April 1999’s month-long total of $99 billion. By John Lonski, Chief Economist, Moody’s Capital Markets Research Group April 9, 2020

CREDIT SPREADS As measured by Moody's long-term average corporate bond yield, the recent investment grade corporate bond yield spread of 213 basis points far exceeded its 122-point mean of the two previous economic recoveries. This spread may be no wider than 165 bp by year-end 2020.

The recent high-yield bond spread of 937 bp is thinner than what is suggested by the accompanying long-term Baa industrial company bond yield spread of 341 bp and the recent VIX of 43.4 points. The latter has been statistically associated with a wider than 1,250 bp midpoint for the high-yield bond spread.

DEFAULTS February 2020’s U.S. high-yield default rate of 4.5% was up from February 2019’s 2.8%.

US CORPORATE BOND ISSUANCE Fourth-quarter 2018’s worldwide offerings of corporate bonds incurred annual setbacks of 23.4% for IG and 75.5% for high-yield, wherein US$-denominated offerings plunged by 26.1% for IG and by 74.1% for high yield.

First-quarter 2019’s worldwide offerings of corporate bonds revealed annual setbacks of 0.5% for IG and 3.6% for high-yield, wherein US$-denominated offerings fell by 3.0% for IG and grew by 7.1% for high yield.

Second-quarter 2019’s worldwide offerings of corporate bonds revealed an annual setback of 2.5% for IG and an annual advance of 17.6% for high-yield, wherein US$-denominated offerings sank by 12.4% for IG and surged by 30.3% for high yield.

Third-quarter 2019’s worldwide offerings of corporate bonds revealed annual advances of 15.2% for IG and 56.8% for high-yield, wherein US$-denominated offerings soared higher by 36.8% for IG and 81.3% for high yield.

Fourth-quarter 2019’s worldwide offerings of corporate bonds revealed annual advances of 15.3% for IG and 329% for high-yield, wherein US$-denominated offerings dipped by 0.8% for IG and surged higher by 330% for high yield.

For 2019, worldwide corporate bond offerings grew by 5.4% annually (to $2.447 trillion) for IG and advanced by 49.2% for high yield (to $561 billion). The projected annual percent changes for 2020’s worldwide corporate bond offerings are -8.3% for IG and -28.1% for high yield.

US ECONOMIC OUTLOOK An unfolding global recession will rein in Treasury bond yields. As long as the global economy operates below trend, the 10-year Treasury yield may not remain above 1.25% for long. Until COVID-19 risks fade substantially, wider credit spreads are possible.



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EUROPE By Barbara Teixeira Araujo of Moody’s Analytics April 9, 2020

UNITED KINGDOM The U.K. GDP numbers for February were a major letdown, revealing that the British economy had little momentum even before the COVID-19 crisis hit. All hopes were on a sharp rebound following December’s decisive general elections and the passing of the Brexit deal, but this clearly didn’t happen. Britain's GDP barely budged in January and then contracted by 0.1% m/m in February. February’s extraordinarily wet weather was partly to blame for the month’s poor results, since it hurt the construction sector (plants were forced to close) and reduced footfall in the High Street. The COVID-19 containment measures imposed in China in February also hit activity, because Chinese factory closures disrupted supply chains, which depressed industrial production. The drop in Chinese tourist arrivals similarly hammered the accommodation and food industry. But the results were lackluster even accounting for these one-off factors. Most of the rise in manufacturing production was because of a sharp increase in pharmaceuticals output, which is extremely volatile, and because of a further increase in food, beverages and alcohol production. We assume the latter is related to pre-pandemic stockpiling by households. That services stalled was also a letdown. A plunge in transport and storage combined with a drop in retail sales were mainly to blame (both related to coronavirus developments or to the bad weather), but the results for most other services subsectors weren’t impressive either. In any case, February’s numbers are ancient history now. Any developments earlier in the quarter will pale in comparison with the downturn we are penciling in for March. Lockdown and quarantine measures were adopted in the U.K. on March 23, but since mid-month households had started avoiding public spaces and gatherings. Nonessential retail was closed, several manufacturers shut their plants, and construction projects were put on hold. This means that output in all sectors of the economy are expected to plummet from mid-March. The services sector will take the biggest beating. Transport and storage (especially those travel-related) ground to a halt over the past weeks, while restaurants and hotels have been closed. Food and online sales likely soared as people were stuck at home, but any increase there isn’t expected to offset the weakness in all other sectors of discretionary spending. The real estate sector will also take a tumble, as the government essentially froze the housing market. Financial and insurance activities will also suffer, with anecdotal evidence showing that households and businesses have become more cautious about their money and investments. Our forecast is for a 5% m/m decline in output in March, which should lead GDP to slump by 1.6% q/q in the first quarter. For the second quarter, we are penciling in a sharper double-digit plunge of around 10% q/q, though the numbers could be even worse depending on how long the containment measures last. The virus is still well off its peak in the U.K., as the country was one of the last in Europe to enforce stay-at-home measures, which suggests that a lot of damage is still to come. On the upside, the U.K. government and central bank enacted very generous and aggressive policy packages to help the economy through this crisis. They won’t prevent the economy from falling off a cliff in the short term, but they should facilitate a quick and strong recovery once the virus is contained.

EURO ZONE This week brought further evidence that the euro zone economies were doing well before the virus hit. February industrial production figures for Germany were especially strong; factory output rose by 0.3% m/m, building on the 3.2% jump in January. The numbers for core production (excluding energy and construction) were even better, with manufacturing up by 0.5% m/m. These results came despite the supply chain disruptions caused by factory closures in China, which we had expected would deal a heavy blow to factory growth and confirm our view that German manufacturing was getting firmly back on its feet at the start of 2020 after a weak 2019. But we can’t get too excited by these numbers now. March should bring a sharp fall in production, as several plants shut down during the second half of the month. For the first quarter as a whole, we expect that industrial production dropped by around 3% q/q, and we expect a double-digit rate of decline in the three months to June.

Italy’s retail sales results for February were also upbeat; sales rose by 0.8% m/m, building on a 0.1% increase in January. We caution, though, that most of this uptick came from food sales (which is the story for other countries as well), as people rushed to stockpile ahead of the anticipated enforcement of containment measures. The



d draconian policies in Italy suggest that sales could plunge by 30% to 40% m/m in March, as most nonessential shops were closed. Numbers for April should be even worse.

The euro zone’s construction PMI index plunged from 52.5 in February to 33.5 in March, its lowest since February 2009. That the data were collected between March 12 and March 31 suggests that some responses were likely received before the lockdown measures were put in place, which would warrant an even lower reading in April. Especially downbeat was that the rate of job shedding in the sector was the fastest in a decade in March.

Across countries, we were especially alarmed by Italy’s results; the country’s construction PMI plummeted from 50.5 in February to 15.9 in March, likely the lowest reading ever seen—not only in Italy, but across all countries. That’s despite the fact that construction sites were allowed to remain open for most of the month. Italy’s economy will likely to be the hardest-hit by the COVID-19 containment measures in March, as the country was for several weeks the epicenter of the virus in Europe, a title that now goes to Spain. We are penciling in a 6.5% q/q decline in Italy’s GDP in the first quarter, which should be followed by a sharp 13.9% plunge in the second. This compares with an expected 3.6% q/q first-quarter decline in the euro zone, which should be followed by a 10.9% fall in the second.

We weren’t surprised that Italy’s results were the worst since the country was hit hard by the virus outbreak. Italy’s manufacturing PMI dropped to 40.3 from 48.7, with output, new orders and employment each plummeting.

ASIA PACIFIC By Katrina Ell of Moody’s Analytics April 9, 2020

COVID-19’S GLOBAL HIT COVID-19 is dealing a severe economic shock to the global economy. The virus began in China but has spread across the globe with more than 1.3 million people infected. In just over a month our baseline assumption has deteriorated such that global recession is the most likely outcome for the first half of 2020. The economic pain across the globe is palpable; U.S. jobless claims have spiked, and euro zone manufacturing has tumbled as the number of cases continues to rise.

Asia is an interesting case. China is getting back on its feet after the worst of its outbreak has passed, and this will have positive spillovers for the region given that China is the largest trading partner for most economies in Asia. But localized outbreaks have spiked, most recently in Japan, Southeast Asia and Australia, meaning that containment methods have become more restrictive and could continue to increase. Also, while China is an important stimulant of growth within Asia, Europe and the U.S. remain important final sources of demand for goods produced in Asia, meaning that any recovery in China will be dampened by what is happening outside of the region.

We have examined several channels of impact:

Trade exposure On trade exposure, exports are a critical growth driver for most economies in Asia. Singapore and Hong Kong have the largest export exposure at around 180% of GDP. As a result, these economies are extremely vulnerable to downswings in global trade flows and tend to thrive when the global economy is on an upswing. Both economies underperformed through 2019 as the U.S.-China trade war dampened global demand. Vietnam’s economy is next in line, with exports making up around 100% of GDP. In Malaysia and Thailand, they make up around 70%, while South Korea stands at 40%. For all of these economies, China is the largest trading partner. Heavily integrated supply chains generally meant that when China was suddenly hit with COVID-19 and its transport linkages and factories closed, logistics were thrown into disarray, and these economies felt a particular brunt of the impact.

Outside of the region, Asia’s export engine is more heavily tied to the U.S. than it is to Europe. The U.S. economy is feeling deep pain and our baseline assumption is that the U.S. economy will contract by 5.2% in 2020, after the 2.3% expansion in 2019. This is problematic given the high proportion of Asian-produced goods that have the U.S. as a final source of demand.

COVID-19 has brought significant supply chain disruptions to the global economy. But those economies that are primarily commodity exporters—including Indonesia, Australia and New Zealand—are far from immune. The significant downward revisions to global growth, alongside the slump in global oil prices from the supply glut, has hurt commodity prices. This is a double blow for economies such as Malaysia, which have faced severe supply chain



d disruptions on the tech front in addition to a slump in oil revenues; oil generally contributes at least 20% to government revenues.

Local management of the outbreak China is out of the thick of the crisis, with the daily growth rate of new infections flattening, on an official basis. But this is not the case outside of China. In particular, Japanese Prime Minister Shinzo Abe declared a state of emergency this week amid fears the country is at high risk of an exponential surge. The number of COVID-19 cases rose over the weekend by more than 1,000. The total number of cases in Japan was 3,654 as of Monday but could be higher due to the relatively low testing rate. A state of emergency means that local governments have additional powers and residents are urged to stay home. This applies to seven prefectures including Tokyo and Osaka. Tokyo accounts for around 18% of Japan’s GDP, while Osaka’s contribution is just over 7%.

Containment methods in numerous countries have been more aggressive than Japan’s approach, with lockdowns becoming almost the norm in recent weeks to get the situation under control. The idea is that lockdowns reduce localized spread, and while the economic pain is more severe than less-aggressive measures, it is hoped the situation will ease more quickly.

External position A number of emerging markets in Asia have high external vulnerability. Indonesia’s has been particularly pronounced during this COVID-19 episode, as evidenced by large declines in the rupiah despite a three-pronged approach from the central bank to stabilize it. Indonesia is historically vulnerable from an external perspective given the high foreign ownership of government bonds (around 40%), alongside its current account deficit. India, Malaysia and Thailand follow suit. India has been historically vulnerable given its large current account deficit, but working in its favour recently has been the global rout in oil prices, since it is a large oil importer.

Malaysia’s ringgit outlook is weighted to the downside by several factors, even though it has been relatively resilient so far. The fiscal deficit has widened with COVID-19 and the oil supply glut, and so have political risks after the leadership upheaval in February. This increases the risk of the tide turning on Malaysia.

The threat of capital outflows in Malaysia and other emerging market economies limits the ability of central banks to provide further monetary support, even if they have space, should conditions continue to deteriorate. Emerging markets are already at a disadvantage in the current risk-averse environment, where uncertainty and fear dominate.

Policy space Governments throughout Asia generally have lower debt loads than their U.S. and European neighbours, increasing fiscal space to stimulate in severe economic shocks. This has been reflected with the artillery of stimulus measures quickly offered as the crisis unfolded and the promise of further support if conditions continue to deteriorate. Across the region, fiscal policy is working alongside monetary policy to try to cushion the COVID-19 blow. Hong Kong and Singapore have introduced government spending measures that take budgets for this year and the next to at least multiyear deficits. This is also the case for most Asia-Pacific economies, recognizing the severe hit the virus is bringing. This is similarly the case for central banks, where most have reduced the policy rate in addition to often providing targeted support to those most at risk, including small and medium-size enterprises, and a broader support mechanism to encourage credit growth.

Japan is the main exception here. Government debt stands at 240% of GDP, while the Bank of Japan’s ammunition is severely depleted after years of pulling out all stops and a perennially weak economic performance. Nevertheless, Japan on Monday announced a larger-than-expected US$988 billion (20% of GDP) stimulus package, bringing total fiscal stimulus directly related to COVID-19 to US$1.14 billion (22% of GDP). Japan is throwing what it can at the crisis.


CAPITAL MARKETS RESEARCH Ratings Round-Up

Ratings Round-Up

A Single Upgrade in the U.S., None in Europe By Michael Ferlez The COVID-19 pandemic continues to deal a heavy blow to corporate credit quality. For the reference period ending April 7, there were a total of 68 downgrades and one upgrade. Although this marks a modest decline from last week’s total of 84 downgrades, the situation remains similarly dour. Downgrades were widespread, but energy exploration and production and manufacturing were among the hardest hit. U.S. energy firms are being crushed by simultaneous supply and demand shocks that have pushed oil prices to multi-decade lows. The most notable downgrade in the energy sector was to Exxon Mobil Corp., which saw its senior unsecured credit rating cut to Aa1 from Aaa. Meanwhile, the sole upgrade was made to Sprint Corp., which saw its senior unsecured credit rating upgraded two-notches to B1, affecting $21 billion in debt. The upgrade of Sprint Corp is paired with a downgrade of T-Mobile USA Inc, which saw its senior unsecured debt cut to Ba3. Moody’s Investors Service downgraded T-Mobile’s unsecured debt following its completed merger with Sprint, which significantly increased the proportion of secured debt in the pro forma capital structure of the combined company. European rating change activity was equally grim. For the week ended April 7, there were 26 downgrades and no upgrades. Downgrades impacted firms in nine different countries, with the United Kingdom receiving the most downgrades at 10. However, the largest change in terms of total amount of affected debt was Swedbank AB. The Swedish bank saw its senior unsecured credit rating cut to A3 impacting $13.5 billion in outstanding debt. Moody’s Investors Service downgraded the Swedish banks due to governance and risk management deficiencies following the conclusion of an independent investigation and an investigation by the Swedish Financial Supervisory Authorities that revealed serious deficiencies in the bank’s management of anti-money laundering risks.

FIGURE 1

Rating Changes - US Corporate & Financial Institutions: Favorable as % of Total Actions

0.0

0.2

0.4

0.6

0.8

1.0

0.0

0.2

0.4

0.6

0.8

1.0

Feb01 Apr04 Jun07 Aug10 Oct13 Dec16 Feb20

By Count of Actions By Amount of Debt Affected

* Trailing 3-month average

Source: Moody's



FIGURE 2

Rating Key

BCF Bank Credit Facility Rating MM Money-MarketCFR Corporate Family Rating MTN MTN Program RatingCP Commercial Paper Rating Notes NotesFSR Bank Financial Strength Rating PDR Probability of Default RatingIFS Insurance Financial Strength Rating PS Preferred Stock RatingIR Issuer Rating SGLR Speculative-Grade Liquidity Rating

JrSub Junior Subordinated Rating SLTD Short- and Long-Term Deposit RatingLGD Loss Given Default Rating SrSec Senior Secured Rating LTCF Long-Term Corporate Family Rating SrUnsec Senior Unsecured Rating LTD Long-Term Deposit Rating SrSub Senior SubordinatedLTIR Long-Term Issuer Rating STD Short-Term Deposit Rating



FIGURE 3

Rating Changes: Corporate & Financial Institutions – US

Date Company Sector RatingAmount

($ Million)Up/

Down

Old LTD

Rating

New LTD

Rating

Old STD

Rating

New STD

RatingIG/SG

4/1/20 DANAHER CORPORATION Industrial SrUnsec/CP 7,950 D A2 Baa1 P-1 P-2 IG

4/1/20SOFTBANK GROUP CORP. -SPRINT CORPORATION

Industrial SrUnsec 21,255 U B3 B1 SG

4/1/20 WHITING PETROLEUM CORPORATION IndustrialSrUnsec

/LTCFR/PDR2,182 D Caa2 C SG

4/1/20 T-MOBILE US, INC.-T-MOBILE USA, INC. Industrial SrUnsec 15,350 D Ba2 Ba3 SG

4/1/20JO-ANN STORES HOLDINGS INC. -JO-ANN STORES LLC.

IndustrialSrSec/BCF

/LTCFR/PDRD B1 B3 SG

4/1/20 UNDER ARMOUR, INC. IndustrialSrUnsec

/lTCFR/PDR600 D Ba1 Ba2 SG

4/1/20AT HOME GROUP INC. -AT HOME HOLDING III INC.

IndustrialSrSec/BCF

/LTCFR/PDRD Caa1 Caa2 SG

4/1/20BCD INTERMEDIATE HOLDINGS, INC -AMERICAN TRAILER WORLD CORP.

Industrial SrSec 670 D B3 Caa1 SG

4/1/20ARG HOLDING CORPORATION-IRB HOLDING CORPORATION

IndustrialSrUnsec/SrSec/BCF

/LTCFR/PDR485 D Caa2 Caa3 SG

4/1/20 ASP UNIFRAX HOLDINGS, INC. IndustrialSrSec/BCF

/LTCFR/PDRD B3 Caa1 SG

4/1/20 ALKU HOLDINGS, LLC-ALKU, LLC IndustrialSrSec/BCF


4/2/20 EQT CORPORATION UtilitySrUnsec/LTCFR

/PDR/MTN4,695 D Ba1 Ba3 SG

4/2/20EXXON MOBIL CORPORATION -XTO ENERGY, INC.

Industrial SrUnsec/LTIR 30,547 D Aaa Aa1 IG

4/2/20 TENET HEALTHCARE CORPORATION Industrial SrSec 8,980 D Ba3 B1 SG

4/2/20 RANGE RESOURCES CORPORATION IndustrialSrUnsec/LTCFR

/SrSub/PDR3,421 D B1 B3 SG

4/2/20 EQUINOX HOLDINGS, INC. IndustrialSrSec/BCF


4/2/20 ANTERO RESOURCES CORPORATION IndustrialSrUnsec

/LTCFR/PDR6,900 D B1 Caa1 SG

4/2/20 SHERIDAN INVESTMENT PARTNERS I, LLC Industrial PDR D Ca D SG4/2/20 VIVINT, INC.-APX GROUP, INC. Industrial SrSec/BCF 1,725 D B2 B3 SG

4/2/20 CALIFORNIA RESOURCES CORP. IndustrialSrUnsec/SrSec

/BCF/LTCFR/PDR4,778 D Caa3 C SG

4/2/20 RESOLUTE INVESTMENT MANAGERS, INC. FinancialSrSec/BCF

/LTCFR/PDRD Ba2 Ba3 SG

4/2/20 PROPULSION ACQUISITION, LLC IndustrialSrSec/BCF


4/2/20 KENAN ADVANTAGE GROUP, INC. IndustrialSrSec/BCF

/LTCFR/PDR405 D B2 B3 SG

Source: Moody's



FIGURE 3



($ Million)Up/

Down

Old LTD

Rating

New LTD

RatingIG/SG

4/2/20 ANTERO MIDSTREAM PARTNERS LP IndustrialSrUnsec


4/2/20VENATOR MATERIALS PLC -VENATOR MATERIALS LLC

Industrial SrSec/BCF 375 D Ba3 B1 SG

4/2/20 CPM HOLDINGS, INC. IndustrialSrSec/BCF


4/2/20EQUITRANS MIDSTREAM CORPORATION -EQM MIDSTREAM PARTNERS, LP

IndustrialSrUnsec

/LTCFR/PDR3,500 D Ba2 Ba3 SG

4/2/20 INSPIRED ENTERTAINMENT, INC. IndustrialSrSec/BCF


4/3/20MACANDREWS & FORBES HOLDINGS INC -REVLON ESCROW CORPORATION

IndustrialSrUnsec/SrSec/BCF

/LTCFR/PDR950 D Caa3 Ca SG

4/3/20 LIFE TIME, INC. IndustrialSrUnsec


4/3/20 BELK, INC. IndustrialSrSec/BCF


4/3/20 BDF ACQUISITION CORP. IndustrialSrSec/BCF


4/3/20AUTHENTIC BRANDS GROUP LLC -ABG INTERMEDIATE HOLDINGS 2 LLC

Industrial SrSec/BCF D B1 B2 SG

4/3/20 GAVILAN RESOURCES, LLC IndustrialSrSec/BCF

/LTCFR/PDRD Caa1 C SG

4/3/20STERLING INTERMEDIATE CORP.-STERLING MIDCO HOLDINGS, INC.

IndustrialSrSec/BCF


4/3/20AMG ADVANCED METALLURGICAL GROUP N.V.

IndustrialSrSec/BCF

/LTCFR/PDRD Ba3 B1 SG

4/3/20 QUIDDITCH ACQUISITION, INC. IndustrialSrSec/BCF


4/3/20GENUINE MID HOLDINGS LLC-GENUINE FINANCIAL HOLDINGS, LLC

IndustrialSrSec/BCF


4/3/20 STG-FAIRWAY HOLDINGS, LLC IndustrialSrSec/BCF


4/6/20 ALLIANCE HEALTHCARE SERVICES, INC. IndustrialSrSec/BCF

/LTCFR/PDRD Caa2 Ca SG

4/6/20 HARLEY-DAVIDSON, INC. Industrial SrUnsec/MTN 5,048 D Baa1 Baa2 IG

4/6/20PC NEXTCO HOLDINGS, LLC-PARTY CITY HOLDINGS INC.

IndustrialSrUnsec/SrSec

/BCF/LTCFR/PDR850 D Caa1 Caa2 SG

4/6/20 GLOBAL EAGLE ENTERTAINMENT, INC. IndustrialSrSec/BCF


4/6/20 NEW RESIDENTIAL INVESTMENT CORP. Financial LTIR/LTCFR D B2 B3 SG

4/6/20 TEAM HEALTH HOLDINGS, INC. IndustrialSrUnsec/SrSec/BCF

/LTCFR/PDR865 D Caa2 Ca SG

4/6/20 LEARNING CARE GROUP (US) NO. 2 INC. IndustrialSrSec/BCF


Source: Moody's



FIGURE 3



($ Million)Up/

Down

Old LTD

Rating

New LTD

RatingIG/SG

4/6/20WENCOR GROUP LLC. -JAZZ ACQUISITION, INC.

IndustrialSrSec/BCF

/LTCFR/PDRD Caa2 Ca SG

4/6/20 KC SUB, INC.-KUEHG CORP. IndustrialSrSec/BCF


4/6/20ASCENT RESOURCES, LLC-ASCENT RESOURCES UTICA HOLDINGS, LLC

IndustrialSrUnsec


4/6/20 BIG RIVER STEEL LLC IndustrialSrSec/BCF

/LTCFR/PDR600 D B3 Caa1 SG

4/6/20 TMK HAWK PARENT, CORP. IndustrialSrSec/BCF


4/6/20 WOODFORD EXPRESS, LLC IndustrialSrSec/BCF


4/6/20ELEVATE TEXTILES HOLDING CORPORATION-ELEVATE TEXTILES, INC.

IndustrialSrSec/BCF


4/6/20EDWARD DON & COMPANY HOLDINGS, LLC-EDWARD DON & COMPANY, LLC

IndustrialSrSec/BCF


4/6/20ENCINO ACQUISITION PARTNERS HOLDINGS, LLC

Industrial SrSec/BCF D B2 B3 SG

4/6/20 ENVISION HEALTHCARE CORPORATION IndustrialSrSec/BCF


4/6/20 WESCO AIRCRAFT HOLDINGS, INC. (NEW) Industrial SrSec/LTCFR/PDR 2,075 D B3 Caa1 SG

4/7/20 SM ENERGY COMPANY IndustrialSrUnsec


4/7/20BRIGHT HORIZONS FAMILY SOLUTIONS LLC

IndustrialSrSec/BCF

/LTCFR/PDRD Ba3 B1 SG

4/7/20 OASIS PETROLEUM INC. IndustrialSrUnsec


4/7/20 WENDY'S COMPANY IndustrialSrUnsec


4/7/20MOMENTIVE PERFORMANCE MATERIALS INC.

IndustrialSrSec/BCF


4/7/20KLDISCOVERY INC. -LD INTERMEDIATE HOLDINGS, INC.

IndustrialSrSec/BCF


4/7/20 ATI HOLDINGS ACQUISITION, INC. IndustrialSrSec/BCF


4/7/20 MB AEROSPACE HOLDINGS II CORP. IndustrialSrSec/BCF


4/7/20 MOSS CREEK RESOURCES HOLDINGS, INC. IndustrialSrUnsec


4/7/20 GI REVELATION ACQUISITION LLC IndustrialSrSec/BCF


4/7/20 KESTREL ACQUISITION, LLC Industrial SrSec/BCF D B1 B2 SG

4/7/20UPSTREAM TOPCO, LLC -UPSTREAM NEWCO, INC.

IndustrialSrSec/BCF


Source: Moody's



FIGURE 4

Rating Changes: Corporate & Financial Institutions – Europe


($ Million)Up/

Down

Old LTD

Rating

New LTD

Rating

IG/SG

Country

4/1/20CMA CGM S.A. -CEVA LOGISTICS FINANCE B.V.

IndustrialSrSec/BCF

/LTCFR/PDRD B3 Caa1 SG NETHERLANDS

4/1/20 CIMPRESS PLC IndustrialSrUnsec/SrSec

/BCF/LTCFR/PDR600 D B2 B3 SG IRELAND

4/1/20 THOM EUROPE S.A.S. IndustrialSrSec/BCF

/LTCFR/PDRD B2 B3 SG FRANCE

4/1/20 COMET BIDCO LIMITED IndustrialSrSec/BCF


UNITED KINGDOM

4/1/20 PINNACLE BIDCO PLC IndustrialSrSec/BCF


UNITED KINGDOM

4/1/20RICHMOND UK TOP HOLDCO LIMITED-RICHMOND UK BIDCO LIMITED

IndustrialSrSec/BCF


UNITED KINGDOM

4/1/20 AI ALPINE AT BIDCO GMBH Industrial SrSec/BCF D B2 B3 SG AUSTRIA

4/2/20 SWEDBANK AB FinancialSrUnsec/JrSrUnsec/LTI

R/LTD/Sub/MTN13,529 D Aa2 Aa3 IG SWEDEN

4/2/20 WILLIAM HILL PLC Industrial SrUnsec/LTCFR/PDR 1,318 D Ba1 Ba3 SGUNITED

KINGDOM4/2/20 IMERYS S.A. Industrial SrUnsec/MTN/CP 2,142 D Baa2 Baa3 IG FRANCE

4/2/20EMIL HOLDING II S.A.R.L. -LIMACORPORATE S.P.A.

IndustrialSrSec/BCF

/LTCFR/PDR297 D B2 B3 SG ITALY

4/2/20 HNVR MIDCO LIMITED IndustrialSrSec/BCF


UNITED KINGDOM

4/2/20 PARK LUXCO 3 S.C.A. IndustrialSrSec/BCF

/LTCFR/PDRD B1 B2 SG LUXEMBOURG

4/2/20VENATOR MATERIALS PLC -VENATOR MATERIALS CORPORATION

IndustrialSrUnsec


UNITED KINGDOM

4/3/20 SGL CARBON SE Industrial SrSec/LTCFR/PDR 270 D B2 B3 SG GERMANY

4/3/20TRAVELPORT HOLDINGS LIMITED -TRAVELPORT FINANCE (LUXEMBOURG) S.A.R.L.

IndustrialSrSec/BCF

/LTCFR/PDRD Caa2 Caa3 SG LUXEMBOURG

4/3/20KCA DEUTAG ALPHA II LTD -KCA DEUTAG UK FINANCE PLC

IndustrialSrSec/BCF

/LTCFR/PDR1,310 D Caa1 Caa2 SG

UNITED KINGDOM

4/3/20 SELECTA GROUP B.V. IndustrialSrSec/BCF

/LTCFR/PDR1,595 D B3 Caa1 SG NETHERLANDS

4/3/20 EDREAMS ODIGEO S.A. Industrial SrSec/LTCFR/PDR 459 D B2 Caa1 SG LUXEMBOURG

4/3/20ARD SECURITIES FINANCE SARL-ARDAGH PACKAGING FINANCE PLC

IndustrialSrSec/SrUnsec

/LTCFR/PDR7,700 D Ba3 B1 SG IRELAND

4/3/20 FIRE (BC) S.P.A Industrial SrSec/LTCFR/PDR 702 D B3 Caa1 SG ITALY

4/6/20LSF9 CANTO INVESTMENTS S.P.A. -EVOCA S.P.A.

Industrial SrSec/LTCFR/PDR 594 D B2 B3 SG ITALY

4/6/20EAGLE SUPER GLOBAL HOLDING B.V.-EAGLE INTERMEDIATE GLOBAL HOLDING B.V.

Industrial SrSec/LTCFR/PDR 960 D B3 Caa2 SG NETHERLANDS

4/7/20INEOS GROUP LIMITED -INEOS FINANCE PLC

IndustrialSrSec/SrUnsec

/BCF/LTCFR/PDR2,627 D Ba1 Ba2 SG

UNITED KINGDOM

4/7/20 ATOTECH UK TOPCO LTD IndustrialSrUnsec/SrSec

/BCF/LTCFR/PDR725 D Caa1 Caa2 SG

UNITED KINGDOM

4/7/20 MOTION MIDCO LIMITED IndustrialSrUnsec/SrSec

/BCF/LTCFR/PDR1,210 D B3 Caa1 SG

UNITED KINGDOM

Source: Moody's



Market Data

Market Data Spreads

0

200

400

600

800

0

200

400

600

800

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Spread (bp) Spread (bp) Aa2 A2 Baa2

Source: Moody's

Figure 1: 5-Year Median Spreads-Global Data (High Grade)

0

400

800

1,200

1,600

2,000

0

400

800

1,200

1,600

2,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Spread (bp) Spread (bp) Ba2 B2 Caa-C

Source: Moody's

Figure 2: 5-Year Median Spreads-Global Data (High Yield)



Market Data

CDS Movers

CDS Implied Rating Rises

Issuer Apr. 8 Apr. 2 Senior RatingsEnergy Transfer Operating, L.P. Ba3 B2 Baa3Union Pacific Corporation Aaa Aa2 Baa1Johnson & Johnson Aaa Aa2 AaaLockheed Martin Corporation Aa1 Aa3 A3Norfolk Southern Corporation Aaa Aa2 Baa1Freeport-McMoRan Inc. B1 B3 Ba1Eastman Chemical Company A3 Baa2 Baa2Devon Energy Corporation Ba3 B2 Ba1ConocoPhillips Baa1 Baa3 A3Westock RKT Company Aaa Aa2 Baa2

CDS Implied Rating DeclinesIssuer Apr. 8 Apr. 2 Senior RatingsUnited Airlines, Inc. Caa3 Caa1 Ba3Expedia Group, Inc. B1 Ba2 Baa3Wyndham Destinations Ba3 Ba1 Baa3Beazer Homes USA, Inc. Caa3 Caa1 B3Dillard's, Inc. Ba3 Ba1 Baa3Intel Corporation A2 A1 A1Capital One Financial Corporation Ba1 Baa3 Baa1NextEra Energy Capital Holdings, Inc. A2 A1 Baa1Southern California Edison Company A3 A2 Baa2Capital One Bank (USA), N.A. Baa1 A3 Baa1

CDS Spread IncreasesIssuer Senior Ratings Apr. 8 Apr. 2 Spread DiffFrontier Communications Corporation Caa3 25,203 20,067 5,136Neiman Marcus Group LTD LLC Ca 20,099 17,546 2,553American Airlines Group Inc. B1 2,721 2,010 711K. Hovnanian Enterprises, Inc. Caa3 2,492 1,912 580Penney (J.C.) Corporation, Inc. Caa3 14,883 14,448 435Beazer Homes USA, Inc. B3 1,166 794 372United Airlines Holdings, Inc. Ba3 1,233 998 235United Airlines, Inc. Ba3 1,143 925 218Chesapeake Energy Corporation Caa3 14,649 14,434 215R.R. Donnelley & Sons Company B3 1,232 1,070 163

CDS Spread DecreasesIssuer Senior Ratings Apr. 8 Apr. 2 Spread DiffOccidental Petroleum Corporation Ba1 1,578 2,162 -585Avis Budget Car Rental, LLC B1 986 1,192 -206Tenet Healthcare Corporation Caa1 768 931 -163Hertz Corporation (The) Caa1 2,703 2,856 -153Apache Corporation Baa3 761 911 -149Carnival Corporation Baa3 1,369 1,514 -145Avon Products, Inc. B3 960 1,102 -142International Game Technology B3 727 866 -139Nabors Industries, Inc. B3 3,665 3,797 -132Freeport Minerals Corporation Baa2 408 527 -119

Source: Moody's, CMA

CDS Spreads

CDS Implied Ratings

CDS Implied Ratings

CDS Spreads

Figure 3. CDS Movers - US (April 2, 2020 – April 8, 2020)



Market Data

CDS Implied Rating Rises

Issuer Apr. 8 Apr. 2 Senior RatingsRabobank Aa3 A1 Aa3BNP Paribas A3 Baa1 Aa3Societe Generale A3 Baa1 A1Deutsche Bank AG Baa3 Ba1 A3Intesa Sanpaolo S.p.A. Baa3 Ba1 Baa1ABN AMRO Bank N.V. Aa3 A1 A1ING Bank N.V. Aa3 A1 Aa3Banco Santander S.A. (Spain) A3 Baa1 A2Landesbank Hessen-Thueringen GZ A1 A2 Aa3Total S.A. Baa2 Baa3 Aa3

CDS Implied Rating DeclinesIssuer Apr. 8 Apr. 2 Senior RatingsSpain, Government of Baa3 Baa2 Baa1Ireland, Government of A1 Aa3 A2Finland, Government of Aa1 Aaa Aa1Standard Chartered PLC Baa3 Baa2 A2Vodafone Group Plc Baa2 Baa1 Baa2Erste Group Bank AG A3 A2 A2Banco Sabadell, S.A. Ba1 Baa3 Baa3Unione di Banche Italiane S.p.A. Ba1 Baa3 Baa3Banca Monte dei Paschi di Siena S.p.A. B2 B1 Caa1Tesco Plc Baa3 Baa2 Baa3

CDS Spread IncreasesIssuer Senior Ratings Apr. 8 Apr. 2 Spread DiffMatalan Finance plc Caa2 2,234 1,903 331Vedanta Resources Limited B3 2,793 2,667 126TUI AG B2 935 856 79Unione di Banche Italiane S.p.A. Baa3 193 124 69Hammerson Plc Baa1 373 317 55Valeo S.A. Baa3 384 350 34Unibail-Rodamco-Westfield SE A3 304 273 31Bayerische Motoren Werke Aktiengesellschaft A2 154 129 25Banco Sabadell, S.A. Baa3 157 134 24Banca Monte dei Paschi di Siena S.p.A. Caa1 431 409 23

CDS Spread DecreasesIssuer Senior Ratings Apr. 8 Apr. 2 Spread DiffPizzaExpress Financing 1 plc C 9,957 10,359 -401CMA CGM S.A. Caa1 2,142 2,489 -347Iceland Bondco plc Caa2 788 1,107 -319Stena AB B3 815 951 -136Boparan Finance plc Caa1 1,022 1,147 -124Atlantia S.p.A. Ba3 468 583 -115Novafives S.A.S. Caa2 1,976 2,065 -89Premier Foods Finance plc Caa1 466 545 -79Ineos Group Holdings S.A. B2 506 567 -61Wienerberger AG Ba1 327 384 -57

Source: Moody's, CMA

CDS Spreads

CDS Implied Ratings

CDS Implied Ratings

CDS Spreads

Figure 4. CDS Movers - Europe (April 2, 2020 – April 8, 2020)



Market Data

Issuance

0

600

1,200

1,800

2,400

0

600

1,200

1,800

2,400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Issuance ($B) Issuance ($B)2017 2018 2019 2020

Source: Moody's / Dealogic

Figure 5. Market Cumulative Issuance - Corporate & Financial Institutions: USD Denominated

0

200

400

600

800

1,000

0

200

400

600

800

1,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Issuance ($B) Issuance ($B)2017 2018 2019 2020

Source: Moody's / Dealogic

Figure 6. Market Cumulative Issuance - Corporate & Financial Institutions: Euro Denominated



Market Data

Investment-Grade High-Yield Total*Amount Amount Amount

$B $B $BWeekly 119.155 3.400 122.595

Year-to-Date 608.978 133.544 773.250

Investment-Grade High-Yield Total*Amount Amount Amount

$B $B $BWeekly 46.695 0.000 49.599

Year-to-Date 269.489 35.572 313.289* Difference represents issuance with pending ratings.Source: Moody's/ Dealogic

USD Denominated

Euro Denominated

Figure 7. Issuance: Corporate & Financial Institutions



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Positive Earnings Outlook Requires Flat to Lower Interest Rates (Capital Markets Research)

Overvalued Equities Increase Corporate Credit’s Downside Risk (Capital Markets Research)

High-Yield Rating Changes Say High-Yield Bond Spread Is Too Thin (Capital Markets Research)

Return of Christmas Past Does Not Impend (Capital Markets Research)

Next Plunge by Profits to Drive Leverage Up to 2009 High (Capital Markets Research)

Corporate Bond Issuance Reflects Business Activity’s Heightened Sensitivity to Rates (Capital Markets Research)

Equities Advanced for 95% of the Yearly Declines by High-Yield Bond Spread (Capital Markets Research)

Improved Market Sentiment Is Mostly Speculative (Capital Markets Research)

Loans Impart an Upward Bias to High-Yield Downgrade per Upgrade Ratio (Capital Markets Research)

VIX, EDF and National Activity Index Go Far at Explaining the High-Yield Spread (Capital Markets Research)

Worsened Fundamentals Lift Downgrades Well Above Upgrades (Capital Markets Research)

Next Recession May Lower 10-year Treasury Yield to Range of 0.5% to 1% (Capital Markets Research)

Abundant Liquidity Suppresses Defaults (Capital Markets Research)

Cheap Money in Action (Capital Markets Research)

Bond Implied Ratings Hint of More Fallen-Angel Downgrades (Capital Markets Research)

Leading Credit-Risk Indicator Signals A Rising Default Rate (Capital Markets Research)

Upon Further review, Aggregate Financial Metrics Worsen (Capital Markets Research)

Faster Loan Growth Would Bode Poorly for Corporate Credit Quality (Capital Markets Research)

Likelihood of a 1.88% Fed Funds Rate by End of July Soars (Capital Markets Research)

Market Implied Ratings Differ on the Likely Direction of Baa3 Ratings (Capital Markets Research)

Below-Trend Spreads Bank on Profits Growth, Lower Rates and Healthy Equities (Capital Markets Research)

Global Collapse by Bond Yields Stems from Worldwide Slowdown (Capital Markets Research)

Borrowing Restraint Likely Despite Lower Interest Rates (Capital Markets Research)

The Fed Cured 1998's Yield Curve Inversion (Capital Markets Research)

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Fed Extends Support to Some High-Yield Issuers · Analytics does not provide investment advisory...

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