By Yali N’Diaye

WASHINGTON (MNI) – A day after Fitch Ratings described solid
fundamentals for U.S. high yield issuers, Moody’s Tuesday described
“stable conditions,” even seeing “positive signs” despite the
macroeconomic headwinds.

“The B3 Negative and Lower List Corporate Ratings List and other
Moodys indicators of corporate credit quality suggest benign conditions
for US high-yield companies despite concerns emanating from Europe and
uncertainty surrounding the US economic outlook,’ Moody’s said in a
report titled “High-Yield Companies Hold Firm Amid Macroeconomic
Concerns.”

The rating agency forecast a default rate of 4% in October going
down to 3% a year from now, compared with 3.1% in May.

On Monday, Fitch said it expects the default rate to be between
2.5% and 3% by year end, estimating that fundamentals are “good.”

Indeed, speculative-grade issuers are “in good shape,” agreed
Moody’s.

“The number of companies on Moodys B3 Negative and Lower Corporate
Ratings List is down from levels at the beginning of 2012, a positive
sign for credit quality of US speculative-grade companies,” Moody’s
said.

“Relatively few rated U.S. companies have weak liquidity, default
rates are low and robust refinancing activity has strengthened corporate
balance sheets,” it added.

In addition, Moody’s pointed out that rather than defaults or
rating withdrawals, issuers tended to be removed from the list of
companies rated B3- or below by being upgraded, “another positive sign
for speculative-grade U.S. companies.”

The list currently includes 166 companies, compared with 176 three
months ago and almost 300 at the height of the crisis in 2009.

“The significant refinancing activity of recent years has allowed
many U.S. speculative-grade companies to push debt maturities out to
2014 and beyond,” Moody’s said. “This means there are fewer companies
that would be immediately in danger of default in the early stages of an
economic downturn.”

Those positive reports from Moody’s and Fitch Ratings are good news
for yield hungry fixed income investors who have been piling up
corporate debt, including — where their mandate allows — high yield
debt.

Fund data provider EPFR Global reported last Friday that “Flows
into High Yield Bond Funds jumped to a seven week high” in the week
ended June 20, absorbing over $1.3 billion.

The latest flows are consistent with expectations that central
banks will step up to the plate again, putting more pressure on those
holding cash and safe haven debt and boosting the attraction of riskier,
more rewarding asset classes and tangible alternatives to paper
currencies,” observed Director of Research Cameron Brandt.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: MR$$$$,M$U$$$,M$$FI$,MAUDS$]