Credit downgrade probability in Household Goods sector increases by 13%, while Airlines sector retains greatest risk of downgrades overall

• bondIT’s Scorable Credit Upgrade & Downgrade Forecast indicates that aggregated downgrade risk has increased the most in the Household Goods Sector, moving from 16% to 29% over the past quarter.
• At 31%, the downgrade probability of corporate debt is greater in the Airlines sector than in any other industry
• The change in upgrade probability of corporate debt is either negative or neutral for 12 of the 14 sectors analysed; however, the upgrade potential in the Energy and Hotels, Resorts and Casinos sector has increased by 2% and 1% respectively
• 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 November 2022 – The latest Scorable Credit Upgrade & Downgrade forecast from bondIT, a provider of credit analytics and next-gen fixed income technology, indicates that the probability of achieving a negative change to a credit rating has increased most within the Households Goods sector in the third quarter of 2022. The downgrade potential has increased by 13%, from 16% in Q2 to 29% in Q3.

Following Household Goods, Household Products – which includes hygiene, personal, beauty, home care, health, and nutrition brands – saw the second highest increase of aggregated downgrade risk to credit over in the past quarter. The downgrade probability of the sector’s corporate debt rose by 6%.

Aggregated risk has increased in the Airlines industry, by 2% quarter-on-quarter and by 5% since the start of 2022. The strength of the dollar has renewed pressure on the airline industry’s balance sheets, driving up costs, from fuel to the aircrafts themselves. With the downgrade potential now at 31%, it is the industry most at risk of being downgraded, followed by Travel & Tourism and Household Products at 30%.

David Curtis, Partner at bondIT, said: “Anticipating changes in credit risk and understanding market dynamics early is crucial in this volatile market environment. There is a real opportunity for bond investors now to take advantage of higher yields, but we also see a lot of risk in the market. High-quality data is paramount to understanding credit risk and to achieve optimal bond allocation. The challenge faced by many fixed income investors, in the face of increasing margin pressure and resource constraints, is how to translate huge amounts of raw data into useful intelligence. This is where AI offers real added value. In a competitive landscape, better data drives better performance and that’s where bondIT is able to really harness technology to create a lasting competitive advantage, improve productivity and efficiency for our clients.”

Against a challenging economic backdrop of rising interest rates, reduced consumer spending and high inflation, the Technology sector also faces headwinds. The downgrade probability is now 15%, an increase of 2% over the past quarter, and 4% since the start of the year. The downgrade probabilities in the Automotive and Biopharma industries have also increased by 3% and 2% respectively.

Aggregated risk in the Energy sector has, in comparison, reduced quarter-on-quarter in line with rising profits. After a -2% decline in upgrade potential between Q1 and Q2, there has been a 2% reversal in Q3. The upgrade probability for corporate bonds is now 23%.

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 adheres to the highest privacy and security standards and is SOC 2 certified by Ernst & Young. 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.