Junk Credit Threat Grows as Rates Stay High, Says BNP

The threat of weak companies not being able to pay their debts is rising as interest rates stay elevated. “On high yield and loans, I do think that risks are growing that you could see a reset in spreads,” Meghan Robson, head of US credit strategy at BNP Paribas, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Mike Holland. “The obvious trigger for us would be that debate of rate hikes coming back,” Robson says in the latest Credit Edge podcast. BNP favors shorting some single B and CCC rated issuers whose credit spreads have tightened alot. “If rate cuts do seem to be pushed off more and more, I think there could be a sell off there,” said Robson. In addition, BNP favors bonds rated BBB, flags high-yield debt in the media sector as an opportunity, and expresses caution on the financial sector, given the likelihood of an earnings drag if the Federal Reserve doesn’t ease. “The biggest risk we’re watching is a red wave,” says Robson, when asked about the impact of the US presidential election on credit markets. See omnystudio.com/listener for privacy information.