High-yield ETF and Crude Oil

들어가며

High-yield (HY) bond들의 특징은 '금리 인상' 이슈보다는 회사 내부상황에 영향을 더 받습니다. 즉, 정책의 영향보다는 경제 펀더멘탈에 더 큰 영향을 받는다 할 수 있습니다. 금융위기 이후 수많은 유동성이 High-yield 시장, 특히 Energy Sector에 흘러갔습니다. 이번 글에서는 High-yield bond 시장과 원자재 가격이 함께 걸어온 길을 정리해 볼 것입니다.

High-yield ETF 환매금지

지난 12월 말 'Third Avenue Focused Credit Investor ETF'가 환매를 중단하는 등 유동성에 문제가 불거지기 시작하였습니다. 이 문제의 ETF는 C 혹은 아예 투자등급조차 없는 junk bond들로 구성되어 있습니다.

특히나 Third Avenue ETF에 속해있던 고위험군 투기채권들은 더 말할 것도 없고요. 하지만 양적 완화 이후 대형 자금들이 high-yield bond 시장으로 흘러들어 갔습니다. 따라서 high-yield bond 시장 또한 기준금리에 큰 영향을 받기 시작하였지요. Third Avenue ETF 역시 기준금리 인상과 회사 내부 사정이 지속해서 악화하면서 '환매 불가 초강수까지 쓴 것으로 보입니다.

Third Avenue Focused Credit Investor ETF는 약 -23% 하락하며 환매 금지 조치가 내려졌다.
출처: Yahoo Finance

'높은'등급의 High-yield ETF는?

iShare Investment Grade (LQD)와 High-yield (HYG) ETF를 비교해보면 재미있는 그림이 나옵니다. 1년 동안 Investment Grade ETF는 4.86% 하락한 데 반면 High-yield ETF는 10.07% 하락하였습니다. '15년 9월 8일 기준으로는 Investment Grade는 1.31%, High-yield는 6.77% 하락하였습니다. 채권시장이 전체적으로 하락하고 있지만, High-yield ETF의 하락세는 더 가팔라 보입니다.

Investment Grade ETF (파랑색)과 High-yield ETF (빨강색) 추이 그래프.
출처: Yahoo Finance

High-yield ETF 하락의 요인

High-yield ETF의 하락세에는 에너지 가격 하락이 크게 작용합니다. iShare High Yield ETF (HYG)의 약 12%가 energy sector가 차지하고 있는데, 에너지 가격 하락은 기업 수익률을 악화시켜 ETF의 하락세를 부추기고 있는 것입니다.

High-yield ETF (파랑색)과 Crude Oil (주황색) 추이 그래프
출처: Yahoo Finance, FRED

에너지 가격 하락과 금리 인상 두 가지 총알을 맞은 에너지 회사들의 운명이 궁금해집니다. 언제까지 채권시장을 통해 refinancing을 할 수 있을까요? 지금 가지고 있는 채권들은 결국 갚을 수 있을까요? 미국 에너지 회사들이 이 지경인데, 신흥국에 있는 에너지 회사들은 어떨지 더 궁금해집니다.

중국 시장과 제조업 PMI지수

오늘 중국시장이 -7.0% 기록하면서 서킷브레이크 발동. 조기폐장 했습니다. 두 가지 이유를 많이 드는데, 첫 번째는 제조업 PMI 지수의 예상치 하회 (예상치 48.9 결과 48.2). 두 번째는 중국 자금이탈 (위안화 약세)로 인한 심리적인 요인입니다.

중국 제조업 PMI 지수는 작년 3월부터 50을 하회하고 있습니다. 미국의 제조업 PMI 또한 2014년 10월을 기준으로 계속해서 떨어지고 있고요. 즉 중국과 미국 제조업 악화는 지속해서 이루어지고 있었다는 뜻입니다. 하지만 이번 제조업 PMI 지수 악화가 다르게 다가오는 까닭은 금리 인상 이슈 때문이지 아닐까 싶습니다. 세계 경제는 아직 긴축 정책으로 들어갈 상태가 아닌데, 미국에서는 긴축 정책을 시작했기 때문이죠. 시중 자금은 서서히 줄어들텐데 경제는 나아지지 않는 상황이 오고 있습니다.

미국 ISM 제조업 PMI지수. 출처: FRED

중국 Caixin 제조업 PMI지수. 출처: Investing.com

제조업 PMI지수가 의미하는것

제조업 PMI지수 악화와 경제성장 부진은 에너지 회사들에게 부담을 줍니다. 제조업 PMI지수가 낮다는 뜻은 제조업이 위된다는 의미인데, 작년부터 공급과잉에 시달린 원자재는 더욱 수요가 줄어들 것입니다. 더구나 저번 OPEC 회의에서 감산에 실패하였습니다. 미국은 원유 수출을 앞두고 있고, 이란 또한 원유 수출을 곧 공식적으로 제기할 것으로 보입니다.

이 뜻은 Energy Sector의 비중이 높은 High-yield bond 시장이 반등할 기반을 마련하지 못 하고 있는 것을 시사합니다. 양적 완화의 유동성이 Energy Sector에 많이 들어간 것을 가만하면 시장은 더욱 힘들어질 수 있을것 같습니다. 문제는 Energy Sector가 계속해서 refinancing을 할 수 있을지, 혹은 이 자금은 갚을 수 있을지가 될 것 같습니다.

결론

원자재 가격의 하락은 선진국 소비하락 및 경제성장치 하락에서 촉발되었습니다. 이것이 중국 경제를 둔화시키고, 원자재 시장을 악화시켰습니다. 이제 원자재 가격의 폭락은 인플레이션을 억제하게 되었고, 내수시장이 강한 미국만 경제를 어느정도 회복시켰습니다. 하지만 미국의 큰 축을 담당하는 Energy Sector 또한 큰 타격을 입고 있습니다. High-yield bond 시장은 반등할 새로운 기반이 필요할 것으로 보입니다.

Global Economy Outlook – Commodity, Inflation and Advanced Nations

Abstract

Commodity price is one of the biggest concerns when Fed increases interest rate. Commodity price effects on inflation rate, which can potentially influence over consumption and corporation earnings. Throughout the report, we will address what caused decline in commodity price, and how it has effect on inflation rate.

Inflation on Economic Outlook

Advanced nations have suffered from low inflation. Low inflation could be beneficial for consumers since it provides lower price of goods, not for our economy today. Appropriate level of interest rate stimulates consumption, which boosts net income of firms. It, then, leads to increase in investment and creation of jobs. Inflation is helpful sometimes.

Figure 1 U.S. Inflation rate (red) and personal consumption expenditure (blue). They started declining together after 2014. Source: FED

After the great recession from December 2007 to June 2009, Fed conducted quantitative easing, which purchased $3.5 trillion worth of securities with zero-bound interest rate, to achieve 2% inflation rate. U.S. achieved on June 2014, but it started falling afterward. Inflation rate on September 2015 came out around -0.02%. Fed missed its target (Figure 1).

Quantitative easing restored its economy that U.S. GDP growth rate bounced back to pre-crisis level of 4% in Q3 2015 (Figure 2). But it costed a lot; debt held by Fed increased from 3.0% to 15.2% last 8 years (Figure 2).

It means that U.S. now needs to reduce its debt by increasing its interest rate and cutting government spending. Yet Fed cannot increase interest rate without inflation rate hike since it can contract U.S. economy.

Figure 2 U.S. GDP (blue, left) has been increased to pre-crisis level of 4% in Q3 2015. However, percentage of Federal Debt by GDP increased from 3.21% in Q3 2008 to 15.85% in Q1 2015.

Source: FRED

Cause of Low Inflation

Low commodity price dragged down inflation rate. As commodity price decreases, producer cost declines that firms are unwilling to increase their price. It is resulted in stagnated inflation rate.

Commodity price declined as world economy slowed down. IMF World Economic Outlook (Figure 3), for example, cut that global economic growth rate by 0.1%.

Especially Commodity of Independent States excluding Russia declined its growth rate by 0.4%. As Advanced Economics growth rate slows down, demand of goods from China declines. It leads to decline in commodity exports from developing nations since China is the largest commodity consumer in the world.

Figure 3 IMF Economic Outlook Projection for advanced and emerging nations. Growth rate in advanced nations started to decline in Oct. 2014, and emerging nations declined in Jan. 2015 projection.

Crude oil price stayed around $100 in mid-20014 because market participants expected higher oil demand coming from global growth; there was a bubble in the price. As price was skyrocketing, energy industry expanded its investment to increase supply.

As expectation faded away in October 2014, however, oil price fell down (Figure 4). It hurts global economics that hurts investment and labor market.

Figure 4 GreeHaven Commodity Index is a commodity index that weights 17 different commodities with the same weight. S&P GSCI Commodity Index is a commodity index that has 79% weight of energy sector. GreenHaven declined by 18.53% while S&P GSCI decreased by 39.29% from October 2014 to October 2015. Source: Yahoo Finance

Influence over Investment and Quality of Job

As economy slows down and expected profit declined, firms started to decline investment and wage (Figure 5). It resulted in interest rate hike issue and U.S. economic growth. FOMC released statement on September that they decided to maintain 0~0.25% interest rate due to low commodity price and inflation, and concerns over quality of jobs in labor market.

Despite unemployment rate declined to full-unemployment level of 5.1% in Sep. 2015, quality of job is continuously declined after commodity price decreased. From 2.4% in Q1 2014, average hourly earnings for workers started to decline to 1.9% in Q2 2015 (Figure 5). Along with personal expenditure spending (Figure 1), it gives a concern over consumption that takes around 70% of U.S. GDP.

It is resulted in stagnated corporate investment. Level of investment is stagnated since Q1 2013 (Figure 5). Despite it continuously shows positive growth rate, it is still below pre-crisis level. It is mainly caused by slow in consumption and rise in inventory level that companies are unwilling to expand their plant investment further.

Figure 5 U.S. Fixed capital formation (blue, left) and average hourly earnings (red, right).
Source: FED

Conclusion

Advanced nations stimulated their economy through quantitative easing. It provides high liquidity in the market, boosts inflation, improves labor markets and increases corporative investment spending.

It worked well until Q2 2014 where commodity price started falling down. With slowing global economic growth and low inflation rate caused by commodity price, quality of job declined, spending on investment stagnated, and consumption decreased.

At the same time, U.S., especially, debt on GDP increased by approximately five times. It will give more pressure for advanced nations’ debt, and potentially influence over economic growth.

Corporate Leverage In Emerging Markets: Increased liquidity and corporate leverage

Summary

In October 2015, IMF published “Corporate Leverage In Emerging Markets – A Concern?” to analyze risks in financial markets in EM. High EM corporate leverage can potentially lead to credit crunch and financial crisis in 2008. IMF gave five recommendations to prevent the crisis.

Why did the EM Corporate Leverage Increase?

After the Great Recession in 2008, Fed, BOJ and ECB conducted own quantitative easing that provides copious liquidity in financial markets. Fed purchased assets worth of $3.5 trillion while BOJ and ECB have purchased approximately $8.5 billion and $6.3 billion of government securities.

As the liquidity flew into EM, leverage in nonfinancial corporations rose from $4 trillion in 2004 to $18 trillion in 2014 (Figure 1). At the same time, corporate debt to GDP ratio increased by 26% (Figure 2). This copious capital grew the nonfinancial industries, but sudden spike in leverage might cause bubble in financial markets.

Figure 1 EM corporate debt and market capitalization ($ Billion). Source: IMF

Figure 2  EM corporate debt to GDP ratio. Source: IMF

Quantitative Easing Expanded the Corporate Leverage

Although loans are still the largest component of the debt, the proportion of bond is continuously growing. The share of bond rose from 9% in 20014 to 17% in 2014 (Figure). It showed a significant increment in 2008, when U.S. conducted the QE (Quantitative Easing). With strengthen regulations, banks reduced cross-board lending while financial institutions issued more bonds with favorable conditions for EM corporations.

Figure 3  EM corporate debt compositions and their growth rate. Source: IMF

QE effect on EM on three different ways. First, emerging nations lowered interest rates to defend domestic currencies (Figure 4). After the QE the domestic currencies appreciated, which pressured exports and increased capital inflow. By lowering interest rates, emerging nations could stabilize exports and restrict capital inflow.

Figure 4 Interest Rate of Advanced nations (U.S. and Eurozone) and emerging markets (Indonesia and Mexico).

Source: FRED

Second, global liquidity flew into EM fixed income market. As yields in U.S. declined (Figure 5) after the QE, investors increased the portion of bonds in the EM in their portfolio. Because yields in EM have relatively high yields (Figure 5), it gives portfolio gives portfolio effect that allows to maintain certain level of risk and yields in the investors’ portfolio.

Figure 5 Advanced nations (U.S.) and emerging nations (South Korea and New Zealand) 10 year government yields.

Source: FRED

For last, the corporations were more attractive to have foreign currency-denominated bonds. With appreciated domestic currency, the corporations could issue foreign currency-denominated bonds with cheaper price. It led to issuing more foreign bonds especially in Southeast Asia, EMEA and Latin America (Figure 6).

Figure 6 Issuance By Region. Source: IMF

Problem raised when the corporations cannot bear significant increase of debt. Despite the leverage has been increased, their net profit has been declined (Figure 7). I can lead to credit crunch and another financial crisis when interest rate starts to rise.

Figure 7 Ratio of EM corporation leverage to its profit. Source: IMF

Global Economic Conditions and Fixed Income Markets

High corporate leverage came from increased liquidity, which can be weakened by global economic conditions rather than domestic reasons. Like liquidity, corporate leverage in EM is highly concentrated on construction and energy industries. With recent fall in commodity and real estate markets, net profits in those industries have fallen (Figure 9).

Figure 8 Corporations in EM leverage to total asset. Source:  IMF

Liquidity has been improved after the Great Recession, but their profit has been weakened as global economic sentiments fallen down. It means that corporations could raise capital but their profits have not been significantly improved. Fortunately, foreign exchange risk has not been increased due to increased foreign reserves, exports and use of derivatives. Yet fallen profits and increased leverage are still big concerns for the EM.

IMF Recommendation on the Emerging Market

IMF gave five recommendations to prepare for quantitative tightening.

1. Careful monitoring of vulnerable sectors of the economy and systemically important firms as well as their linkages to the financial sector is vital
   
2. The collection of financial data on the corporate sector, including foreign exchange exposures, needs improvement.
   
   
3. Macroprudential policies can be deployed to limit excessive increases in corporate sector leverage intermediated by banks.
   
   
4. Microprudential measures should also be considered. For instance, regulators can conduct bank stress tests related to foreign currency risks, including derivatives positions.
   
   
5. Emerging markets should be prepared for corporate distress and sporadic failures in the wake of monetary policy normalization in advanced economies, and where needed and feasible, should reform insolvency regimes.

Quantitative Easing and Its Side Effect

Global financial markets have enjoyed high liquidity came from the QE. They have been grown prior to the financial crisis level, but it caused by high liquidity not improved economic conditions. Unless the economic conditions will improve, this artificial growth will cause another financial crisis. Emerging nations should acknowledge risk in the markets, and prepare for the potential crisis.