Global credit risk is climbing as a surprise spike in U.S. inflation sparked bets on more aggressive interest rate hikes by the Federal Reserve, which in turn triggered expectations of rising corporate financing costs.
The insurance cost of European junk bonds hit its highest level since November 2020, following a similar trend from a North American risk indicator. Credit traders say safe-haven costs for the highest-rated Asian firm are also rising as markets expect the Fed to raise interest rates seven times this year.
"Interestingly, the market is now digesting some of the risks of implementing an emergency rate hike before March," Jim Reid, a strategist at Deutsche Bank, said in a note.
U.S. Treasury yields soared after previously released data showing U.S. inflation was at its highest level since 1983. St. Louis Fed Governor James Bullard said he supported raising interest rates by a full percentage point by early July.
Jan Hatzius, chief economist at Goldman Sachs, now forecasts seven consecutive 25 basis point rate hikes by the Fed in 2022, compared with five previous forecasts.
The data shows that spreads on investment-grade dollar bonds in Asia outside of Japan have widened this year. Traders said the trend continued on Friday, rising 2 basis points at one point.
This article originated from the financial world
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