Kroll Bond Rating Agency (KBRA) releases a macro-market research report entitled “Front Loaded: China, Volatility, and Debt Deflation”. The report makes the following key points:

  • KBRA believes that the secular shift of asset allocations away from high-yield and leveraged credit, and into more secure government and investment grade credits, will result in lower interest rates as the year progresses – even as the Federal Open Market Committee (FOMC) talks about raising interest rates in its policy guidance.
  • Increased market volatility results from changes in expectations for global growth and come at the end of Fed bond market intervention, euphmestically called “quantitative easing.” The credit bubbles in sectors like energy and commodities created during the period of FOMC market intervention must now necessarily be unwound.
  • Watching the benchmark 10-year Treasury trade through 2% yield confirms KBRA’s earlier judgement that the bias with respect to market interest rates will remain negative for some time to come – regardless of what the FOMC may say or attempt to do in terms of increasing the cost of short-term funding. Ironically, KBRA believes that short-term benchmark interest rates will remain under downward pressure even as credit spreads widen and the process of remediating distressed credits moves forward.

To view the full report, please use the following link:
www.krollbondratings.com/show_report/3640

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).