A credit correction is "unavoidable," says S&P, noting nearly half of corporate debt issuers are estimated to be highly leveraged. Some believe the correction is already underway, says the team, and could likely stretch for the next few years as defaults spike.
Total global corporate debt as of the end of last year was $51.4T and is estimated to hit $75T by 2020.
The team coined the term "Crexit" to denote what could be a rapid departure of both lenders and lower-quality borrowers from the debt markets.
Corporate credit is now attractively valued relative to government paper, and has the added bonus of effectively hedging equity exposure, says Societe Generale.
"We see high-yield credit, including the riskier contingent convertible (CoCo) debt market, as presenting the best opportunities after being the hardest hit from weakness in oil, a stronger U.S. dollar and outsized outflows over the past 18 months," says the team, taking note of an even more dovish turn by global central banks, including the ECB's plan to make outright purchases of European investment-grade bonds.
BlackRock launches the iShares Currency Hedged Global ex-USD High Yield Bond ETF (NYSEARCA:HHYX), tracking an index of junk bonds issued in euros, pounds, and loonies, but hedging against currency risk.
The existing iShares Global ex-USD High Yield Corporate Bond ETF (BATS:HYXU) is lower by 7.7% YTD, in part thanks to a gain in the dollar of 6.5%.
The hedged version has expenses of 0.43% vs. $0.40 for the unhedged.