The U.S. corporate sector continues to impress from the credit perspective. In the most vulnerable section of the corporate market, the leveraged companies show surprising stability. Here are some statistics for U.S. High Yield (HY) issuers from JPMorgan.
This chart shows JPMorgan's projection of default levels for leveraged firms. About two years ago JPMorgan changed its tune with respect to default rate forecast once it became apparent that firms will in fact be able to roll their debt via what's called "amend and extend." So far they have been right. At 2% projected default rate the HY market looks attractive indeed.
Much of this improvement is driven by the companies' ability to extend their debt once capital markets opened up in 2010 and 2011 (particularly the first half). The chart shows the amount of bonds that have been "rolled" from nearby maturities to longer maturities as well as new debt issued. But the refinancing binge only tells part of the story.
As companies become more profitable, leverage has been steadily going down (shown in the chart below).
These statistics are in fact reflected in improved ratings as the number of rating upgrades outpaces that of the downgrades.
It may not feel like it now, but over time this should translate into stronger GDP growth and hopefully more jobs.