CERAWeek Reflections | Sovereign Debt Report 2023 | Loans-Bonds Risk Reshuffle | Leverage Loan Default Update | International Women’s Day

Welcome to the latest edition of Essential Economics! I have spent the past five days at our fantastic CERAWeek global energy conference in Houston and share my top ten takeaways. Global Sovereign Ratings Head Roberto Sifon and team argue that sovereigns will face yet another challenging fiscal year complicated by a more uneven social and political environment.?We feature two contributions from Head of Ratings Performance Nick Kraemer: first, after years of strong parallels, financing on speculative grade loans in the US have recently become more restrictive relative to speculative grade bonds; second, the leveraged loan default rate could rise to 2.5% by December 2023 amid persistently challenging credit conditions. Finally, we celebrated International Women’s Day on Wednesday, which included an appearance by Global Head of Research and Development Alexandra Dimitrijevic on ITN’s Gamechangers podcast.

CERAWeek Reflections of an Economist

I have spent the past five days at our fantastic CERAWeek conference in Houston, vastly outnumbered by energy industry executives, policy makers, academics and journalists. It was an amazing tour through the energy transition world as I attended over 30 sessions and appeared on two panels.

Being in the energy market ecosystem with few economists was also a great learning experience!

I collected my top ten takeaways in a blog, which you can read here.

To learn more about CERAWeek, including livestreams and photos, click here.

Sovereign Borrowing Will Stay Elevated

Roberto and team argue that sovereigns will face yet another challenging fiscal year, complicated by a more uneven social and political environment. As a result, and despite tighter financing conditions, we expect sovereign borrowings in 2023 will stay well above pre-pandemic levels.

We project that the 137 sovereigns we rate will borrow the equivalent of $10.5 trillion from long-term commercial sources in 2023.

To read the report, click here.

Loans-Bonds Risk Reshuffle

Nick notes that after years of strong parallels financing on speculative-grade loans in the U.S. have recently become more restrictive relative to speculative-grade bonds. Some of this may be attributed to the shift in relative risk between the two asset classes over the last 10-plus years.

Relative risk aside, the bond market may be too optimistically priced, with its outlook predicated on a Federal Reserve pivot.

To read the report, click here.

Leveraged Loan Defaults Rising

Nick reports that the leveraged loan default rate could rise to 2.5% by December 2023 from 0.85% in January 2023 amid persistently challenging credit conditions. We continue to see evidence that cushions built up after the 2020 recession are thinning for speculative grade issuers. Restrictive primary markets have reduced access to capital. ?

We expect refinancing risk to rise during the year for issuers that face liquidity constraints.

To read the report, click here.

International Women’s Day ft Alexandra Dimitrijevic

On International Women’s Day, Alexandra was on ITN Business’s podcast called Gamechangers.?Along with senior women leaders in business, she shared her experience as well as the findings from the S&P Global Diversity Research lab.?

To listen to the podcast, click here.??