BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR PRIVACY & COOKIE NOTICE
X
HOME > OUR THINKING > > BLOG

Since September, Global Index Credit Risk Levels Climb

The search for greater returns is a road typically paved with greater risks. Therefore, we’ve recently embarked on a task to identify the underlying risk profiles behind some of the major indexes in our bi-monthly Credit Market Pulse publication.  

Perhaps your investment strategy can get closer to the holy grail by matching or surpassing these indexes returns whilst running a lower credit risk?

In the latest Credit Market Pulse, we highlight trends from the S&P Europe 350 Index (see chart below) and the S&P 500 Index.  Risk levels of these indexes are measured using a constituent weighted average Probability of Default (PD) score utilizing S&P Capital IQ’s proprietary probability of default model ‘PD Model Market Signals’.  PD Model Market Signals provides an equity-based PD on over 99% of global market capitalization.

Since the September publication of Credit Market Pulse, risk levels have risen significantly from lows reached at the end of the summer 2014.  A quick glance at the last five weeks’ trends in sector risk levels of the S&P 500 in the below heat-map shows this clearly.  Aggregate risk levels have risen from 0.02% (same level as on August 28th in our report) to 0.13%.   Though the levels are still low, an almost seven times increase is significant.

PD Market Signal Weighted Average S&P 500, Last 5 Weeks

Source: S&P Capital IQ, as of October 17th

The most striking change is the increase in risk levels in the Energy sub-sector.  As of the report’s publication, Energy was among the lowest risk areas (0.01% for S&P 500 as of Aug. 29) and now tops the S&P 500 at 0.66% -- a level that maps to a non-investment grade credit score.  Clearly plummeting global oil prices have taken a significant toll.  The S&P Europe 350 shows a similar story unfolding over the last five weeks with both Energy (1.19%) and Telecommunications (1.28%) jumping to over one percent.

PD Market Signal Weighted Average S&P Europe 350, Last 5 Weeks

Source: S&P Capital IQ, as of October 17th.

The deteriorations in credit over the last several weeks for the S&P Europe 350 has pushed the PD from a low level of 0.09% to a more concerning 0.40% as of October 17th. To keep an eye out for all of the companies discussed in our Credit Market Pulse, read the most recent edition here and sign up to receive future editions when they come out on a bi-monthly basis.

Click here to watch the Credit Market Pulse video.

Subscribe to Insights