Delta variant worries US investors about debt
Financial groups Wells Fargo and BlackRock have joined with tech giants Apple and Amazon in delaying the return of staff to their offices. United Airlines has also responded to nervousness over the spread of the delta variant by demanding that all staff be vaccinated before the northern fall.
“With the rise of COVID-19, investors are starting to get nervous,” said John McClain, portfolio manager at Brandywine Global Investment Management. “Investors should pay attention to the UK as their experience with the most recent peak in cases driven by the delta variant is a leading indicator. There may be additional volatility given the lower liquidity in summer. “
Movements in sectors affected by COVID-19 are a sign that investors are reducing their bets on the pace of the recovery after last year’s slowdown.
Delta is an obvious obstacle, but we are essentially still on the road to recovery.
– Oleg Melentyev, Bank of America
The liquidation continued on Monday, made worse by a drop in oil prices that led to debt of energy companies.
However, analysts and investors such as Mr. McClain do not see the recent nervousness significantly altering the outlook for corporate debt markets, with new funding still available for companies in need and the economic recovery still available. in progress, albeit at a decelerating rate.
“Delta is an obvious obstacle, but we are essentially still on the road to recovery,” said Oleg Melentyev, analyst at Bank of America.
The additional yield above treasury bills, or “spread”, demanded by investors for holding riskier high yield bonds rose to around 3.5 percentage points, from a low of 3.16 percentage points early July, according to ICE BofA index data.
The increase in risk premiums was particularly pronounced at the lowest rated end of the corporate bond ladder. The triple C-rated bond spread fell from a low of 5.88 percentage points last month to 6.75 percentage points on Monday.
The rise of the delta is also affecting the debt of companies already facing pressure from the supply chain. During last week’s earnings call for Itron, chief executive Thomas Deitrich said the maker of meters and sensors for energy and water utilities was experiencing “disruption from supplier factories, logistical constraints, shortages of raw materials and components resulting from the pandemic “.
Itron’s $ 460 million bond maturing in 2026 fell from 102 cents on the dollar to less than 90 cents after the call. It has since fallen to just under 93 cents.