• About Us
  • Contact Us
Today Headline
No Result
View All Result
  • breaking news today
    • Politics news
    • Sports
    • Science News & Society
  • Entertainment News
    • Movie
    • Gaming
  • Technology News
    • Automotive
    • Software & IT
  • Health News
    • Lifestyle
    • Insurance
  • Finance News
    • Money
  • Enterprise
  • Contact Us
  • breaking news today
    • Politics news
    • Sports
    • Science News & Society
  • Entertainment News
    • Movie
    • Gaming
  • Technology News
    • Automotive
    • Software & IT
  • Health News
    • Lifestyle
    • Insurance
  • Finance News
    • Money
  • Enterprise
  • Contact Us
No Result
View All Result
TodayHeadline
No Result
View All Result

What 10% inflation could look like for junk bonds: BofA

2 years ago
in Parenting
Reading Time: 3 mins read


What happens to companies financed in the booming high-yield or “junk-bond” market on the off chance that U.S. inflation pegged at 7.9% in February soars to 10% and stays there?

That’s a question Oleg Melentyev’s credit team at BofA Global explored in a client note Friday, with a look at past instances when American inflation climbed that high, and stuck around for a while.

A key takeaway was that corporate earnings initially held up in the 1970s when inflation twice surged above 10% for a sustained stretch. It also took time for the higher costs of living to translate into tumbling corporate earnings.

This chart shows corporate earnings per share (EPS) growth plunged mostly in the wake of the 1973 to 1975 recession, a period when the popular inflation tracker, the consumer-price index (CPI), rose to about 12%, as crude oil
CL00,
-0.86%
prices soared following the Arab oil embargo.

Inflation climbs above 10%, then corporate earnings plunge

BofA Global Research

“The troughs in earnings growth were in the -20% context in 1976 and 1983, i.e. in the aftermath of recessions,” Melentyev’s team wrote.

To be sure, past corporate earnings growth was much higher than in recent decades, averaging about 15% per year in the 1970s, but only 6.2% since January 2000, according to BofA.

The modern day junk-bond market also didn’t exist until the 1980s when risky debt offerings helped spur a bonanza of corporate takeovers, making it harder for analysts to draw easy comparisons with the past.

Still, Melentyev’s team thinks defaults in the event of a recession could stay low because issuers can repay old debts with inflated cash flows.

Spreads in the energy-heavy U.S. junk-bond market narrowed this week as investors poured nearly $2 billion in funds into the sector, but also with a dearth of new issuance for investors to buy, according to BofA data.

See: Junk-bond issuance pauses as Russia threatens Ukraine, with spreads at their widest level in a year

Junk-bond spreads, or the premium paid above the risk-free Treasury rate, fell to about 343 basis points above the Treasury
TMUBMUSD10Y,
2.385%
rate on Thursday, down from around 421 basis points roughly two weeks ago, according to the ICE BofA US High Yield Index.

High oil prices also have been a boon for energy companies, the biggest segment the U.S. junk-bond market.

Crude oil prices slipped back below $100 a barrel on Friday, a day after President Joe Biden authorized the largest-ever release of U.S. oil reserves to help American’s facing high prices at the gas pump in the wake of Russia’s invasion of Ukraine.

The biggest U.S. junk-bond exchange-traded funds
HYG,
-0.01%

JNK,
+0.05%
ended the week up 0.8% on Friday, according to FactSet. That compares with the S&P 500 index’s
SPX,
+0.34%
0.1% weekly gain and the Nasdaq Composite Index’s
COMP,
+0.29%
0.7% climb since Monday. The Dow Jones Industrial Average
DJIA,
+0.40%
fell 0.1% for the week.

Related Posts

Parenting

“Grocery Girl Fall” Is TikTok’s Latest Decor Trend, & It’s Too Cute Not To Try

Don’t be shocked if you...

Read more

The Scandinavian Sleep Method Might “Save Your Marriage” According To TikTok

‘Fright Krewe’ Is Here! Watch An Exclusive Clip From The Horror Series For Kids

The 50 Most Genius Things Under $35 With Near-Perfect Amazon Reviews

50 Cool Things That Are Selling Out On Amazon Because They’re So Freaking Clever

Load More
  • Trending
  • Comments
  • Latest

Jennifer Lopez, 54, flashes cleavage in a plunging Bach Mai floral frock at the Daytime Beauty Awards in Hollywood to honor Tracy Anderson

Pet monkey fed cocaine before getting flushed down toilet

Why BBA LIBOR Was Replaced by ICE LIBOR

Newsom to Appoint Laphonza Butler to Fill Feinstein's Senate Seat - She Lives In Maryland and Registered to Vote There Last Year | The Gateway Pundit

Newsom to Appoint Laphonza Butler to Fill Feinstein’s Senate Seat – She Lives In Maryland and Registered to Vote There Last Year | The Gateway Pundit

Sandy Hook Promise’s “Just Joking” PSA Is a Must-See

Mass Market EV Ownership Costs 18 Percent More Than Gas Cars: Report

Class-action suit filed against Binance for alleged harm to FTX before its collapse

Star Wars: Ahsoka Episode 8 Release Time and Season Recap

Water makes all the difference

Trivalent vaccine candidate fights measles, mumps, SARS-CoV-2

About Us

Todayheadline the independent news and topics discovery
A home-grown and independent news and topic aggregation . displays breaking news linking to news websites all around the world.

Follow Us

Latest News

Mass Market EV Ownership Costs 18 Percent More Than Gas Cars: Report

Class-action suit filed against Binance for alleged harm to FTX before its collapse

Star Wars: Ahsoka Episode 8 Release Time and Season Recap

Mass Market EV Ownership Costs 18 Percent More Than Gas Cars: Report

Class-action suit filed against Binance for alleged harm to FTX before its collapse

Star Wars: Ahsoka Episode 8 Release Time and Season Recap

  • Real Estate
  • Parenting
  • Cooking
  • NFL Games On TV Today
  • Travel and Tourism
  • Home & Garden
  • Pets
  • Privacy & Policy
  • Contact
  • About

© 2023 All rights are reserved Today headline

No Result
View All Result
  • Real Estate
  • Parenting
  • Cooking
  • NFL Games On TV Today
  • Travel and Tourism
  • Home & Garden
  • Pets
  • Privacy & Policy
  • Contact
  • About

© 2023 All rights are reserved Today headline