Taps Coogan – January 11th, 2020

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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with Anthony Canale, global head of research at Covenant Review, on the Grant’s Current Yield Podcast. In a somewhat technical discussion, Mr. Canale describes the “worst” debt covenant environment he has ever seen, surpassing the peak of the Housing Bubble.

As discussed in the interview, the anticipated default rate on high yield bonds over the next 12 months (9%) is now roughly double the yield on those bonds (~4.5%). Nonetheless, virtually every flavor of the credit market is seeing record issuance and the worst covenant protection in memory.

While loose covenants provide borrowers badly needed room to maneuver during this recession, it is also a reminder that, one way or another, bond holders are going to end up being the bag holders for this era’s reckless monetary and fiscal policy.

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