KBRA COVID-19 Research: Can Credit Hold Ground with U.S. ‘Spiraling Out of Control?’
JUN 15, 2020 - 7:00 am
Kroll Bond Rating Agency (KBRA) released the report, Can Credit Hold Ground While the U.S. Is ‘Spiraling Out of Control?’ which examines the dramatic tightening in most credit spreads in the face of a still unfolding pandemic, deep economic recession and an uncertain political landscape.
KBRA believes this reflects existing and prospective monetary and fiscal support, the reopening of the economy and progress on developing an effective medical response against COVID-19. In addition, KBRA believes the differentiated nature of this downturn and the safe haven status of the U.S. have also served to bolster investor sentiment.
That said, the markets’ view of risk, well rooted in the context of current consensus forecasts of economic and corporate earnings growth, appears overly optimistic. KBRA believes that risks of a second wave of infections are too heavily discounted. And while it does see pent-up demand emerging in 2021, it is believed that the path to full recovery will be slowed by the time needed to develop and fully distribute a treatment protocol and/or vaccine, and the lasting economic impact from behavioral scars inflicted by the pandemic.
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