Janus Henderson Corporate Debt Index

Company Debts Reach New Record but Appetite to Borrow Is Waning - Seite 2

Income is back – corporate bonds are offering exciting opportunities for investors

The median, or typical, yield on investment-grade bonds was 4.9% by May, up from 4.1% a year ago and 1.7% in 2021. This presents opportunities for bond investors to lock into higher income and it raises the prospect of capital gains as the interest rates cycle moves from increases to cuts in 2024.

Outlook

The global economy is slowing as higher interest rates exert pressure on demand and on corporate profits. Higher borrowing costs and slower economic activity mean companies will look to repay some of their debts, though there will be significant variation between different sectors and between the strongest and weakest companies. Net debt is likely to fall less than total debt as cash-rich companies continue to reduce their cash piles. Overall Janus Henderson expects net debt to decline by 1.9% this year, falling to $7.65 trillion.

James Briggs and Michael Keough, Fixed Income Portfolio Managers at Janus Henderson explained:

“The exact path for the global economy and corporate earnings may be very unclear, but the end of the rate-hike cycle and the return of ‘income’ mean there is a lot for corporate bond investors to be happy about.

Debt levels may have risen but they are very well supported, and the global economy has remained remarkably resilient. This resilience and the extraordinarily high levels of profitability companies have enjoyed in the last two years reflect vast sums of government deficit spending and central bank liquidity stimulus during the pandemic. The surge in interest rates needed to quell the resulting inflation is succeeding in most parts of the world, but it is not at all clear when and to what extent the economy will suffer the more painful consequences – higher unemployment and lower profits.

For companies, higher interest costs will gradually increase pressure for the foreseeable future, affecting some more than others depending on their creditworthiness and the structure of their borrowings. All this means exciting times for corporate bond investors. Most obviously, higher interest rates mean ‘income’ is back as a theme. Investors can now lock into meaningful levels of income for the first time in years. Not only that, but when market interest rates fall to reflect lower inflation and a slowing economy, bond prices rise, generating capital gains too. Central banks are likely to start cutting rates in 2024.