Corporate distress is on the rise due to higher interest rates, but companies also recently earned a record amount on cash, Treasury and agency debt...
Corporate bankruptcies look likely to hit the highest level in 13 years as the Federal Reserve’s interest rate rises exacts a toll, according to Guggenheim Investments.
“The fading of these tailwinds will be a gradual process, but the peak of their support to the economy is now behind us,” the team wrote, in a new client outlook. “With less support from disinflation, fiscal policy, and the labor market, the economy should slow by the end of the year, and we think a recession is likely by early 2024.
“We estimate that U.S. nonfinancial corporates are earning a record $171 billion in interest income from cash, Treasury, and Agency debt holdings, up $102 billion in interest earned from the same assets last year,” the team said. “We think that the credit market can live with a 3% CPI scenario even at current stretched valuations,” Oleg Melentyev, credit strategist wrote, in a Friday client note. The consumer-price index for August released on Wednesday reflected a 3.7% annual rate, and the biggest jump in 14 months.
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