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In the most likely scenario of UBS, a total debt of $ 40 billion could be downgraded, focused on the telecom, energy and consumer sectors. This would only be a small part of the market, although Caprio points out that there is a bigger risk in Europe.
In the event of a recession, it expects the downgrade volume to reach $ 218 billion, or about 18% of the total market.
"Although disturbing, it would be lower than the $ 360 billion and $ 310 billion in 2005 and 2009," he wrote.
In the end, Caprio warns against betting against BBB-rated space as being "probably premature" although he thinks that investment grade bonds are a better solution.
Indeed, investors have flocked to higher quality bonds located at the end of the duration curve. Two popular Vanguard ETFs, short-term corporate bonds and medium-term companies, generated nearly $ 5 billion in new cash this year, despite relatively weak returns of just under 1%.
The stakes are also important in this area. Moody's estimates that five-year speculative-grade debt stands at $ 1.6 trillion until 2023 and $ 1.05 trillion worth of higher quality bonds. The rating service stated that the media and technology accounted for most of the maturing debt.
Fixed income in general was a strong preference for investors during the stock market volatility that began in the fourth quarter. The market data company, TrimTabs, said that in the past three months, the largest increase in bond liquidity had been recorded during all its years of activity.
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