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US Liquidity-Stress Indicator saw another spike in Feb, says Moody’s

Publication Date: 13 Mar 2019 - By ReachX Team By ReachX Team
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Macro Environmental, Social & Governance Accounting Equity USA

Moody's Liquidity-Stress Indicator (LSI) rose to a 22-month high of 4.4% in February from 4.0% in January, the rating agency said on Wednesday.

The LSI rises when corporate liquidity appears to weaken and falls when it appears to improve. In a note to clients, Moody’s said the latest rise points to "tightening liquidity amidst cost pressures, increased investments and higher borrowing costs."

Nonetheless, despite its rise, the LSI remains well below its long-term average, indicating that default risk remains low, it added. The LSI's steady climb since April 2018 indicates that liquidity has weakened modestly for US speculative-grade companies.

John Puchalla, Senior Vice President at Moody's, said: "Nonetheless, liquidity conditions remain supported by slowing but still-solid economic growth, which will continue to bolster corporate earnings and cash flow."

In February, there were nine speculative-grade liquidity (SGL) rating downgrades and three upgrades, Moody's said. Six of the downgrades were to the lowest SGL rating, SGL-4, and five of the nine downgrades involved energy firms, some of which are increasing capital spending to keep pace with investing needs.

Despite its rise, the LSI remains well below its long-term average of 6.4%, indicating that default risk remains low. Moody's US speculative-grade default rate came in at 2.7% in February, and is projected to decline to 1.7% in February 2020.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

ReachX Team

 

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