Covenant Quality Plunges To All-Time Low

Covenant Quality is terrible but is it a long-term trend or skewed because of one month of data?

It’s never been better to be a high-yield issuer or high yield investor. According to Moody’s the US high yield default rate fell to a two-year low in the first quarter amid commodity price stability and lack of debt payment pressures after a long period of bond refinancing and maturity extensions.

Additionally, Moody’s Liquidity Stress Index slumped to its lowest level since November 2014 last month off the back of improving corporate earnings and accommodative credit markets. These favorable conditions should have sparked a rush to issue high-yield debt, but so far high-yield issuance is disappointed. Issuance to June 8 was $131 billion,...