Recent central bank bond-buying to calm market turmoil has breached the wall dividing top-grade debt from so-called junk-rated issues, raising the likelihood of the investment industry and even regulators eventually dismantling the barrier.
That offered a lifeline to companies such as Ford , shielding it a from loss of funding after S&P cut it from BBB- to BB+ in late March. As Moody's already assigned it a junk rating, US$35 billion of the carmaker's debt became ineligible for investment grade indexes, which are tracked by passive funds.
" should accelerate the momentum among active managers to go to clients and trustees for some kind of waiver on high-yield holdings so they are not forced to sell at the worst possible time." For a graphic on Euro bond returns, click https://fingfx.thomsonreuters.com/gfx/mkt/ygdvzykadpw/europer cent20bondper cent20returns.JPGIndexes reserved for top-grade bonds and the passive funds that track them have little leeway and investors such as insurers face strict regulatory constraints on holding lower-rated securities.
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