Best performers reads like a who’s who of risky assets
It’s hard not to get a little nervous when you see a chart like the one Bank of America-Merrill Lynch strategists put out on the top asset performers in July. Sure, it kinda sorta makes sense that the most beaten down assets would outperform, but it makes you wonder if all the stimulus pumped into the system is setting up the financial markets, at least the most vulnerable, for another fall.
The high-yield CCC sector is a stand out. This is the debt from the riskiest companies, whose chance of default is well above those with higher credit ratings.
The initial aim of the government when it intervened in financial markets was to ensure that those who deserved access to credit – like solidly-rated companies who couldn’t access affordable financing in commercial paper and longer-term debt market – could get it. The unprecedented support has clearly trickled down the credit ladder as investors seek higher yielding assets. But CCC corporate debt? This looks like another example of things being pushed too far.