违约似乎是最难的词汇

1、Deutsche Bank ResearchEurope GlobalNorth AmericaCredit StrategyDefault StudyDate27 April 20202020: Default seems to be the hardest wordWelcome to our 22nd annual default study. Over this time we have seen extreme default scenarios and huge spread ranges. In the early years, the excessive defaults ca

2、me from the nascent TMT-dominated European HY market in the very early 2000s, but the prevailing theme since has been the move to a structurally low default world. The GFC was only a minor blip to this super-cycle trend.In 2020, we publish this in the heat of a potentially “once-in-a-century” event

3、as the global economy is effectively in hibernation. Without intervention, we would probably now be facing a default environment only previously rivalled by the Great Depression. Assuming we avoid this, as we think we will, it will only be down to the extraordinary support from fiscal and monetary a

4、uthorities. 2020/21 will likely be a supersized version of the last 17 years where the authorities have indirectly and directly artificially suppressed defaults relative to the strength of underlying economies. We show how this has not been good for productivity even if it has been for bondholders.I

5、n this note, we expand upon these themes, provide our default rate forecasts and also show what levels of defaults are priced into credit spreads at the moment and how much excess spread is provided at current market levels for different default scenarios.Deutsche Bank AG/LondonJim Reid Strategist+4

6、4-20-754-72943Nick Burns, CFA Strategist+44-20-754-71970Craig Nicol Strategist+44-20-754-57601Distributed on: 27/04/2020 04:30:10 GMTDISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 066/04/2019.7T2se3r0Ot6kwoPaTable Of Contents HYPERLINK l _TOC_250019 Summary Bullets 3 HYPER

7、LINK l _TOC_250018 Defaults: The Big Longer-Term Picture 5 HYPERLINK l _TOC_250017 HY Default Rate Outlook 11 HYPERLINK l _TOC_250016 Highlighting the support for HY issuers since covid-19 11 HYPERLINK l _TOC_250015 What do traditional indicators suggest? 12 HYPERLINK l _TOC_250014 A typical default

8、 cycle 15 HYPERLINK l _TOC_250013 A more bottom-up assessment 18 HYPERLINK l _TOC_250012 Recoveries usually lower at the peak of the default cycle 20 HYPERLINK l _TOC_250011 Conclusions 21 HYPERLINK l _TOC_250010 Whats Priced into Credit? 23 HYPERLINK l _TOC_250009 Non-financial (cash) spread implie

9、d default rates 23 HYPERLINK l _TOC_250008 Non-financial (cash) default spread premiums 26 HYPERLINK l _TOC_250007 Cohort analysis 28 HYPERLINK l _TOC_250006 The CDS market 31Appendix A Methodology, raw data and calculation 34 HYPERLINK l _TOC_250005 US vs. Europe cumulative default rates 34 HYPERLI

10、NK l _TOC_250004 Calculating spreads required to compensate for default 35 HYPERLINK l _TOC_250003 Recovery rates 36 HYPERLINK l _TOC_250002 Spreads required to compensate for default 36 HYPERLINK l _TOC_250001 Credit spreads vs. spreads required to compensate for default 37 HYPERLINK l _TOC_250000

11、Why additional spread is required 40Summary BulletsDefaults: The Big Longer-Term PictureThe 2020/2021 default cycle will likely be a super-charged version of the last 17 years where the beta of defaults to GDP has reduced dramatically. We will see a notable rise in defaults but nowhere near what the

12、 free market would have delivered.Some of this is understandable as the authorities are intervening to save solvent companies who have been hit by what was an unprecedented shock. However, we would argue that the size of the current bailouts are so large due to a lack of creative destruction over pr

13、ior several cycles and an ultra-low interest rate environment that has kept negative/low profit companies alive for longer than they would have done in the past.We show that this high intervention, high debt era is closely correlated to the low productivity era. Without inflation and financial repre

14、ssion or much higher defaults its hard to see what breaks this vicious cycle. Although, we should add that this is a decent environment for those exposed to default risk if it holds.HY Default Rate OutlookEven though we will see the worst economic contraction since WWII or even the Great Depression,

15、 defaults are only likely to be either slightly below the peaks seen over the last 40 years or a few percentage points above if this outbreak becomes protracted. This will be due to extraordinary intervention from the authorities.For defaults to go even higher, governments and central banks will hav

16、e had to lose the ability to intervene. In trying to assess defaults we have looked at our economists forecast, what spreads tell us and a more bottoms up sector based analysis before coming to a spot forecast.Based on our economists baseline growth forecast, which assumes a fairly speedy “V” shaped

17、 recovery but still one of the worst recessions of the last century, we think default rates will remain below the peaks seen through previous recessions, perhaps no higher than 10%.This will likely be broadly consistent across loans and bonds with the notable exception being EUR HY, which has a far

18、higher concentration of higher rated issuers (more than 65% rated BB or higher). This could leave the EUR HY default rate closer to 6% in the base case.If the effects of the pandemic are more protracted and growth takes longer to recover its likely, given the level of contraction, that default rates

19、 could rise beyond anything we have seen in the past 40 years where we have data. In a worst case, this could push default rates into the 15-20% range (EUR HY towards 12%). However, this scenario would require the authorities to lose some control of the situation, including possibly with Italian deb

20、t.Our purely market-based model suggests that default rates in the US could rise to 7-12% depending on whether we base the analysis on both of the previous two recessions or just the recession of the early 2000s. The lower outcome (based on both recessions) possibly highlights how bailouts have beco

21、me increasingly common and potentially help to keep default rates lower than they might be in completely free markets.HY spreads at their recent peak were arguably consistent with default rates over the next 12 months in excess of 10%. However, based on this assessment the GFC default rate should ha

22、ve peaked above 20%. Therefore, factoring in the volume of stimulus already seen and the fact that the ferocity of spread widening was due to the lack of liquidity, we could argue that peak 2020 spreads so far were consistent with a default rate lower than previous peaks, potentially below 10%.Our b

23、ottom-up assessment suggests USD HY default rates could reach beyond 9.5% in the base case and close to 16% in the more adverse outcome. For EUR HY, the same numbers would be close to 5.5% and around 11% respectively.When we throw this all together, we think the economic outcome could be between the

24、 base case and the protracted pandemic and, therefore, see more intervention to come to soften the blow. As such, our spot default forecast is for EUR HY defaults to be at a relatively mild 7% with USD HY (as well as US and European leveraged loans) at 11%.Whats Priced into Credit?Despite the signif

25、icant tightening in USD IG spreads, the market still implies close to a 20% cumulative five year default rate assuming a 40% recovery.HY spreads are still pricing in relatively high default rates; above 40% across all currencies when assuming a 40% recovery, which is beyond the worst observed five y

26、ear cumulative default rates.If we see something close to an average default cycle, then single-B credit looks attractive at current spread levels. However, for more aggressive default and recovery outcomes, the potential value in lower rated HY diminishes quickly and, in some cases, IG credit might

27、 actually provide the more attractive buy-and-hold investment, particularly if we see a default outcome beyond anything we have seen over the past 40 years.Its hard to make a particularly strong argument for owning CCCs at these levels without expecting a relatively benign default outcome. Current s

28、preads would have failed to compensate for the peak defaults seen during each of the last three recessions.The spread implied default rate for iTraxx Crossover is in the 23-35% which is comfortably beyond the rating implied rate of less than 15%. Similarly the CDX HY implied default rate is 29-43% c

29、ompared to a rating implied rate of 17.6%.CDS HY indices therefore provide attractive excess spreads relative to an average default cycle. If actual default rates are much worse than this then the excess spread on offer can quickly be eroded from these starting levels and it could mean the risk/rewa

30、rd is more interesting for the IG indices.Data to COB 22nd April 2020.Defaults: The Big Longer- Term PictureWelcome to the 22nd annual default study. Over this time we have seen extreme default scenarios and huge spread ranges. In the early years the excessive defaults came from the nascent TMT-domi

31、nated European HY market in the very early 2000s, but the prevailing theme since has been the move to the structurally low default world. In 2020 we publish this in the heat of a potentially “once-in-a- century” event as the global economy is effectively in hibernation. Without intervention we would

32、 probably now be facing a default environment only previously rivalled by the Great Depression. Assuming we avoid this, it will only be down to the extraordinary support from fiscal and monetary authorities. 2020/21 will likely be a supersized version of the last 17 years where the authorities have

33、indirectly and directly artificially suppressed defaults.One of the problems in this cycle is that we didnt enter this pandemic with much of a safety net. In our 2018 edition (“Seeds of an H1 2020 Default Cycle now Sown?”) we discussed how many of our long-term lead indicators were now indicating th

34、at defaults were likely to pick up notably in 2020. Whilst no one could have predicted the pandemic, we think enough late cycle indicators were triggered for it to demand a more cautious approach to credit by the time we got to 2020.In last years study, we suggested that this next credit cycle would

35、 see the third worst spread cycle in history (behind the GFC and the Great Depression) due to a market liquidity crisis but that defaults would likely be more manageable due to intervention past and into the future.In terms of spreads, the covid-19 crisis has indeed so far (give or take) led to the

36、third worst spread cycle in history (Figure 1) but were about to see whether our predictions of a “relatively” mild default cycle (versus the level of growth) hold true in the face of the worst decline in GDP for most developed countries since WWII and for some the worst since the Great Depression.F

37、igure 1: US BBB spreads (bps)US BBB80070060050040030020010001919 1926 1933 1940 1947 1954 1961 1968 1975 1982 1989 1996 2003 2010 2017Source : Deutsche Bank, Bloomberg Finance LP, MoodysTo provide some context, Figure 2 shows how the US default and growth landscape have slowly diverged over the 35 y

38、ears for which we have decent HY default and spread data. We have shown this for BBs and Single-Bs to ensure we control forcredit quality given that the overall HY market has seen its average rating slowly but continuously decline through this period.Figure 2: US GDP vs. US default rates by rating -

39、 BB (left) and single-B (right)6%0%4%1%2%2%0%3%-2%4%-4%5%1985 1988 1992 1996 2000 2004 2008 2012 20166%4%2%0%-2%-4%1985 1988 1992 1996 2000 2004 2008 2012 20160%2%4%6%8%10%12%14%GDP (YoY, LHS)BB Defaults (lnv., RHS)GDP (YoY, LHS)B Defaults (lnv., RHS)Source : Deutsche Bank, Haver, IMFOver this 35-ye

40、ar period, defaults have seen a lower beta to GDP in each cycle. This is aggressively the case for BBs but also for Single-Bs where even in the GFC, the default cycle saw a similar peak to 2002 and 1990 in spite of the much bigger collapse in activity. It was also a shorter duration default cycle in

41、 2009 than in the past more like a short sharp but normal-sized shock.GFC Response (various)Bank of AmericaUS QE2 / EU Stabilisation / GreeceUS QE3/4 (2012-2014) / ESMThis trend has been directly and indirectly due to the actions and interventions of the authorities and has required them to delve de

42、eper into their respective armories in each passing cycle. Figure 3 shows a brief history of key US/EU bailouts over time in 2020 inflation adjusted USD (bn) and shows that the scale required to protect the economy has increased considerable alongside the overall leverage in a global financial syste

43、m that has been reluctant to allow significant creative destruction/ defaults over the past two to three decades. While current policymakers deserve some sympathy for acting as they have done given the nature of the covid-19 shock, the incredible scale of bailouts needed today are in big part a lega

44、cy of previous interventions and extremely loose monetary policy.Figure 3: Largest bailouts in history in 2020 USD ($bn) vs. G7 public and private debt to GDP12,00010,0008,000Penn Central Railroad LockheedFranklin National Bank New York City6,0004,000Chrysler2,0001970197219741976197819800300%Bailout

45、s (LHS)G7 Debt to GDP (RHS) COVID-19 Response (various) 280%ECB APP 1.0 (2015-2018)260%240%220%200%180%160%140%120%201020122014201620182020100%1982Continental Illinois National Bank & Trust Co.198419861988Savings & Loan199019921994Mexican Peso Crisis19961998LTCM2000Airline Industry2002200420062008So

46、urce : Deutsche Bank, Haver, IMF. Dotted line shows our forecast for 2020.Indeed its not just simply a case of preventing defaults through direct bailouts as low policy rates and extreme global QE has dramatically reduced real yields over the past 2-3 decades. Figure 4 updates an often used chart of

47、 ours showing Single-B defaults over the last 40 years alongside real 10 year treasury and bund yields.Figure 4: Global single-B annual default rates vs. real yields16%14%12%10%8%6%4%2%0%16%S&P B Default Rate (LHS) 10yr Real Bund Yield (RHS)10yr Real Treasury Yield (RHS)Real Fed Funds (RHS)Average(1

48、981-2003)AverageAverage(2004-)14%12%10%8%6%4%2%0%-2%1981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020-4%Source : Deutsche Bank, Bloomberg Finance LP, S&PUnder a lower real yield environment

49、, more companies can survive relative to life under a higher real yield environment even if growth is structurally lower. While some of this is beneficial to the economy, there must come a point where extremely low real yields simply keep low-profit companies alive in near perpetuity and impact the

50、overall productive capacity of the economy.Is it really a coincidence that over the last 15-20 years, real yields have collapsed, debt has increased and productivity has fallen. The low productivity puzzle is still being hotly debated in academic circles but a glance at Figure 5 shows that there see

51、ms to be some link between a lower default rate and lower productivity in the economy. Correlation doesnt equal causality but it does seem to be a persuasive argument that the two are interlinked.Figure 5: 5 year rolling productivity vs. 5 year rolling default rates by rating - BB (left) and single-

52、B (right)4%2.0%4%8%3%1.5%3%6%2%1.0%2%4%1%0.5%1%2%0%1985 1988 1992 1996 2000 2004 2008 2012 20160.0%0%0%1985 1988 1992 1996 2000 2004 2008 2012 20165yr Rolling Productivity (LHS)5yr Rolling BB Defaults (RHS)5yr Rolling Productivity (LHS)5yr Rolling B Defaults (RHS)Source : Deutsche Bank, Bloomberg Fi

53、nance LP, S&PAnother problem that has exacerbated the need for even bigger bailouts in this cycle is that since the GFC there has been rapid growth in the capital markets relative to trading liquidity a point we make every year in the Default Study. Figure 6 shows the US credit market as a percentag

54、e of US GDP against the size of US dealer inventories of corporate bonds. This comprises all global borrowers issuing in theUSD credit market and partly reflects a huge increase in demand for fixed income, especially spread product, since the policy measures implemented in the GFC, and those that fo

55、llowed over the past decade. The hunt for yield has driven people into more and more illiquid assets and encouraged increased borrowing given the artificially low yields and the extra forced demand.Figure 6: US credit market (bonds & loans) as a percentage of GDP vs. dealer inventories45%40%35%30%25

56、%20%15%10%5%0%300Pure Corporate Dealer Inventory ($bn, RHS)Corporate Dealer Inventory ($bn, RHS)USD IG (LHS)USD HY (LHS)US Lev Loans (LHS)250200150100500Source : Deutsche Bank, ICE Indices, S&P, NY Fed197619801984198819921996200020042008201220162020Some of this increase in the size of the market is

57、further disintermediation as the trend of moving away from loans being on bank balance sheets to the capital market continues. Regardless of the drivers, we have seen a huge increase in the volume of debt that is subject to the whims of the financial market over the past decade. Given that regulatio

58、n has also reduced the size of dealers trading books over the past decade, this leaves a situation where as soon as a crisis hits, more investors seek the exit to protect their mark-to-market position. This rather inevitably has created the recent meltdown in credit, especially in the US, that promp

59、ted the Fed to go to extraordinary lengths to support the IG market and to a lesser extent HY.After covid-19, well still likely be left with a market that is still prone to sharp liquidity sell-offs in the future but where there will be even more moral hazard as investors will now be of the opinion

60、that the Fed has permanently got their back and will intervene in credit markets when the need arises. The signaling by moving into HY is more important than the size committed so far. This will perhaps limit the scale of future sell-offs but further encourage sub-optimal resource allocation in the