The Federal Reserve shocked markets on March 23rd when it announced extraordinary measures to ensure liquidity flows throughout financial markets.
As the economy slowly begins to emerge from the pandemic, investors may naturally have concerns regarding the long term economic impact.
After a share price surge, Hertz Corporation petitioned for and initially received bankruptcy court approval to raise money via a common stock offering. This was a surprising turn of events for a company that recently filed for Chapter 11 protection.
Small value equities are valued -38% below their 10-year average, while growth, defensive, low volatility, and ESG factors exceed the bubble threshold of +30%. This dispersion has reached a 20-year high, in line with the dot-com bubble.
April 30th will see record fallen angel bonds move out of investment grade indices, more than the entirety of 2009. In response, the Fed has expanded its credit facilities to purchase fallen angels and HY ETFs.
Credit spreads peaked at 10.87% so far in the COVID-19 crisis. Spreads above 10% have occurred in 16 months over the last 25 years. In those 16 periods, high yield bonds have outperformed other asset classes, even stocks, over the 3 years that followed.
High yield bond spreads are 10.71% vs treasuries as of 3/25/20, elevated above the historical median of 4.89% due to macroeconomic uncertainty.
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