Equity Bulls, Look Away
It seems to us that the corporate bond market (now absent the underpinning of a dominating retail technical flow) has reverted back to the macro background reality.... the question is - what happens when the equity market 'admits' that perhaps things are not so rosy...
Remember corporate credit risk reflects just as much on the underlying business volatility and cashflow outlook as the equity part of the capital structure. There are periods in the credit cycle when credit will underperform as management relevers (i.e. buybacks/dividends) but that always only lasts a brief time as credit begins to penalize those actions, making the re-levering non-economic, and an over-expectant equity market reverts back to a less-levered reality.
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