#bond market news
The High Yield Bond Market Has Never Been This Decoupled From Reality
Recovery rates in 2016 are extremely low.. for high-yield bonds, the recovery rate YTD is 10.3% (10.5% senior secured and 0.5% senior subordinate), which is well below the 25-year annual average of 41.4%. Final recovery rates in 2015 for high-yield bonds were 25.2%, compared with recoveries of 48.1%, 52.7%, 53.2%, 48.6%, and 41.0% in full-years 2014, 2013, 2012, 2011, and 2010, respectively. Notably, average recoveries for Energy and Metals/Mining bonds were 18.3% and 20.0%, respectively, which weighed down overall high-yield recovery rates. Excluding the troubled commodity sectors, high-yield recoveries were a more respectable 46.1% (32.1% Ex-Energy only ). As for loans, recovery rates for first-lien loans thus far in 2016 are 24.5%, compared with their 18-year annual average of 67.2%. Final 2015 1st lien recoveries were 48.2%, while average recoveries for Energy and Metals/Mining 1st lien loans were 44.1% and 38.4%, respectively.
The record collapse in recovery rates is shown below.
It is not just JPM who points out what we first noticed in January: in an interview with Goldman s Allison Nathan, credit guru Edward Altman reiterates that same warning, although he focuses on the 2015 recovery rate which already is more than two times higher than that seen in 2016 defaults:
Allison Nathan: What is your view on recovery rates?
Edward Altman: Our approach to recovery rates is not centered on sectors. What we ve looked at carefully over 25 years is the correlation between default rates and recovery rates. As you would expect, when the former rise to high or above-average levels, you always observe the latter dropping to below-average levels. This strong inverse relationship is as much a function of supply and demand as it is of company fundamentals. So if we are expecting a higher default rate in 2016 and even 2017, then we would expect a lower recovery rate. Already in 2015, the recovery rate dropped dramatically relative to 2014 even though the default rate was below average; we saw a 33-34% recovery rate versus the historical average of 45%, measured as the price just after default. This is primarily due to the heavy concentration of energy companies whose recovery rates depend on their ability to liquidate their assets at reasonable prices, which in turn depends on the price of oil. Low oil prices have pushed recovery rates in the energy sector below 25% and even into the single digits for some companies. And that s going to continue. So this year I expect recovery rates much below average, producing a double-whammy of high default rates and low recovery rates for credit investors.
Since then recovery rates have dropped even further. BUT high-yield bond prices have surged on the back of ECB, BOE buying and the knock-on effects of $200 billion per month of experimentation by the world s central-planners.
Simply put, the revelation of a default event exposes the vast gap between real asset values (upon liquidation or bankruptcy) and the artificially supported prices seen in bond markets .
In the 30 year life of the so-called junk bond market, the chasm between reality and central-planner-created markets has never been wider.
#stocks to watch
Analysts give their top stocks to watch this year
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At last investors can put the 2015-16 financial year behind them and concentrate on 2016-17 when Australian companies are expected to start lifting profits once more.
Better still, while the year just ended may have been lacklustre overall for listed companies – and a good deal less than lacklustre for some – the recent reporting season has thrown up several stocks that warrant placement on shareholders’ radar screens.
The year to June 30 was “not great” for corporate profits, in the words of Shane Oliver, head of investment strategy and chief economist at AMP Capital.
Earnings per share tumbled about 8 per cent, driven by a 47 per cent slump in resources profits and a 4 per cent decline in bank profits.
Credit Suisse analyst Richard Hitchens notes that revenue growth was “very hard” to come by, while the trend for cost cutting dried up, taking a toll on margins.
But this year should be a better story.
As Oliver notes, across the market as a whole profits are expected to rise about 8 per cent, thanks to the improved outlook for the resources sector, higher commodity prices, improved supply conditions and cost cutting.
Several companies whose top line is dependent on the health of the Australian economy complained that the drawn-out election campaign dented consumer confidence in the June quarter, which should augur well for the current year.
Further, companies in the S
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#most successful small businesses
Chris Brogan says the Most Successful Small Businesses Do THIS
Many people work 9-to-5 jobs for 30 years — praying only for the day they can retire.
And they complain the whole time on Facebook about how much they hate their jobs.
Yuck! I can’t fathom that.
I love working for successful small businesses. And luckily, I don’t have a regular job.
But what does it take to REALLY succeed as an entrepreneur?
Chris Brogan says the Most Successful Small Businesses Do This
And during a recent interview with MSNBC, Chris dropped some serious knowledge about staying weird making your customers feel like they belong to your tribe.
Pay attention here:
One of Brogan’s best small business tips is that you’ll attract opportunities by standing out being different.
Follow outgoing examples from free-spirited entrepreneurs like Richard Branson, he says.
Here are 4 other juicy nuggets from this stellar interview:
1. Business is About Belonging
People want to be part of a tribe or community.
2. Share the Passion Not Just the Product
Passion drives folks to do what they love. How can you leverage that passion for your business?
3. Make Your Buyer the Hero
Discuss how your product or service makes your customers heroes — not too promotional, though.
4. Tell Their Story, Not Yours
Our product helped Johnny make $100k this year.