Investors in high-yield debt must brace for a further wave of defaults, Goldman Sachs analyst Lotfi Karoui warns. "Despite the strength of the policy support, the cyclical challenges for corporate borrowers remain substantial," he said.
The sell-off on the S&P 500 has become less dramatic in recent days while the Cboe Volatility Index has slipped from its 16 March peak in the wake of central bank interventions. Zach Pandl, Goldman Sachs' co-head of global foreign exchange, interest rates and emerging markets strategy research, says "the pure financial and liquidity stresses" seen recently "have likely peaked" but warns that major downside risks remain to the US economy.
UK business secretary Alok Sharma said yesterday it would be "completely unacceptable" for banks to withhold support to otherwise viable businesses after customers said they were struggling to tap the government's Coronavirus Business Interruption Loan Scheme. The intervention comes after four lenders asked to withdraw temporarily from the scheme because they were struggling to keep up with demand.
The pace at which ratings agencies are downgrading leveraged loans is accelerating, creating risk for collateralised loan obligations. If enough loans become nonperforming around the same time, portfolio managers might have to take losses by dumping lower-rated loans or by reducing interest payments to investors, an action that could lead to downgrades of CLO bonds.
Fears of a shortage of gold to cover the gold futures' market delivery demands has subsided as New York's Comex stockpiles held in warehouses are ample in the near-term to cover the contracts traded. There is also an indication that traders seeking physical gold delivery has also slowed.
UK bankers reportedly have accepted regulators' calls to rein in bonus payments amid the coronavirus crisis, but that position could change. Pay restraints in the UK may impair its ability to attract talent, one banker warns.
The Bank of England's call for banks to cancel dividends has reignited debate among HSBC's board over remaining domiciled in London or returning to its historical Hong Kong base.
The Federal Reserve has launched programmes to ensure adequate supplies of US dollars, but further action is needed, according to the Bank for International Settlements. Companies that rely on global supply chains must have access to dollars "to avoid further economic meltdown", BIS economists say.
The Federal Reserve said on Tuesday it will provide "an alternative temporary source of US dollars other than sales of securities in the open market," in a move some see as intended to halt sales of US Treasurys by foreign investors. Societe Generale's head of US rates strategy Subadra Rajappa says the sales, which reached $100 billion in the three weeks to March 25, are driven by the need to raise cash dollars.
The board of Spanish exchange BME has unanimously agreed to accept SIX Group's takeover bid. "The commitments assumed by SIX and the conditions and precautions imposed by the [authorities] are altogether adequate to protect the appropriate development of the Spanish official secondary markets and financial systems," the board said.
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