Low-Tier Corporate Bonds Fall In Price
Low-rate corporate bonds are falling in price as companies from different sectors are facing financial challenges.
There are a number of companies that are being driven into bankruptcy and restructuring talks because of an inability to remain financially competitive. For example, Windstream Holdings, a landline telecom company, has recently entered bankruptcy protection because more and more consumers are opting for cellphones.
Retailers are struggling to compete with online shopping as well. Additionally, seven coal producers have filed for chapter 11 protection due to rising competition from natural gas and renewable-energy sources.
“There are specific names and specific subsectors where things are not working,” said Oleg Melentyev, a credit strategist at Bank of America Corp.
These companies are attached to triple-C rated corporate bonds, which have steadily decreased in price. However, some believe that it isn’t indicative of a potential economic downturn. Investors are also having trouble finding lucrative investment opportunities in triple-c debt.
“You wonder whether or not double-Bs have become overpriced,” said Ken Monaghan, co-director of high yield at Amundi Pioneer.
Additionally, S&P Global Ratings have downgraded more loans in the past 3 months compared to the number of loans they have upgraded.