- bondIT’s Scorable Credit Upgrade & Downgrade Forecast indicates that downgrade risk has increased by 7% in the Travel and Tourism sector, and by 3% for the Airline industry, in Q2 2022
- The Retail and Consumer Goods sectors also saw an average downgrade probability increase by 3% each
- The upgrade probability across all sectors has either stayed the same or decreased
- bondIT’s predictive credit analytics, powered by machine learning and explainable-AI, analyses more than 250 data variables daily including solvency ratios, capital requirements, profitability, and efficiency ratios
London/Berlin/Israel, 1 August 2022 – The latest Scorable Credit Upgrade & Downgrade forecast from bondIT, a provider of next-gen fixed income technology, indicates that the probability of achieving a negative change to a credit rating has increased most within the Travel and Tourism sector in the second quarter of 2022. The probability of sectors achieving a positive change has either stayed the same or decreased across all sectors.
Against a backdrop of rising fuel costs, staff constraints and strike action, the probability of a rating downgrade within the next 12 month is currently highest for credit issuers in the Travel and Tourism sector at 31%, followed by the Airline industry with 29%. For Hotels, Resorts, and Casinos – many of which will be impacted by the challenges facing holidaymakers – the downgrade probability has increased by 1% and the upgrade probability has also shrunk over the past quarter, from 21% to 19% (-2%).
Downgrade probabilities have also risen across the Consumer Goods and Retail sectors: the average downgrade potential in the Consumer Goods sector has increased by 3% in Q2 2022, from 12% to 15%, whilst the Retail sector downgrade probability has increased by the same amount, from 13% to 16%.
In addition to the rising downgrade risk, the upgrade probability has decreased across almost all sectors quarter-on-quarter, with the Consumer Goods sector seeing the biggest decrease in upgrade probability of -4%. Only the Aerospace & Defence and Banking sectors saw no change in their respective upgrade potential, which remained at 20% and 14% respectively.
“Stagflation is bad for bonds, particularly corporate bonds, delivering a one-two punch of higher interest rates and wider credit spreads to investors’ existing holdings. As the current strain of stagflation continues to infect various parts of the economy and financial markets, volatility is likely to remain high, so corporate bond investors will need to be hyper-vigilant to both risk and opportunity alike,” said David Curtis, Partner at bondIT. “Compared to the first quarter of this year, we’ve seen a notable increase in downgrade potential across a number of sectors. Amidst a more challenging environment with recessionary pressures impacting investor sentiment alongside an expected return of default cycles, the ability to anticipate critical rating changes ahead of the market has become a strategic imperative. Technology can significantly augment portfolio management and research processes so that investors can more easily manage risk, discover new investment opportunities, and build portfolios that optimally balance these risks and returns.”
bondIT’s credit analytics platform, Scorable, harnesses machine learning and explainable-AI to predict downgrade and upgrade probability of more than 3,000 rated corporate and financial issuers worldwide within a 12-month timeframe. The Rating Transition Model analyses more than 250 data variables daily including solvency ratios, capital requirements, profitability, and efficiency ratios. The platform provides actionable insights for investors, allowing them to monitor corporate bond ratings and spreads, and anticipate rating changes and investment opportunities, ahead of the market.
About bondIT
bondIT provides next generation front office investment technology. We combine Data Science, Explainable-AI (XAI) and Advanced Technologies with Fixed Income investment know-how to improve the performance, accuracy and efficiency of our clients’ investment processes and businesses. Our technology enables clients to efficiently build, analyze and rebalance investment portfolios, and achieve within minutes what previously took hours or days. Thanks to bondIT’s predictive credit analytics, investors can anticipate changes in corporate credit risk and capitalise on investment opportunities ahead of the market. The platform is highly flexible, being data agnostic and API or cloud based, and allows for the seamless onboarding of internal models as well as downstream connectivity to existing portfolio management and trading systems. bondIT is privately owned and paving the way for financial institutions of all sizes to integrate the power of greater technology in their investment processes. For more information, please visit www.bonditglobal.com.