Moody's: Liquidity-Stress Index drifts higher

Moody's Liquidity-Stress Index (LSI) for US speculative-grade companies edged up to 4.4% at mid-May from 4.2% in April, the rating agency says. The latest reading is the highest since February 2014, though the LSI remains comfortably below its 6.7% long-term average, indicating that liquidity conditions remain favorable.

Moody's Liquidity-Stress Index falls when corporate liquidity appears to improve and rises when it appears to weaken.

"US speculative-grade companies continue to derive fundamental support from healthy balance sheets and low interest rates in a slowly improving economy," says Senior Vice President, John Puchalla. "Investor appetite for higher-yielding debt remains strong, as evidenced by robust new activity this year."

Through April this year high-yield issuers sold $128 billion in bonds, compared to $116 billion in the same period last year, Puchalla says in Moody's most recent edition of SGL Monitor. The momentum continued in the first two weeks of May, when more than $15 billion was sold. High-yield loan issuance has also recently picked up, with April's $41 billion the highest monthly total since October. However in the year through April, loan issuance was $106 billion, less than half of the $242 billion sold in the same period in 2014.

The 9.8% LSI for the energy sector returned to its highest level since late 2010 after dipping to 9.2% in April and 9.8% in March. Energy companies today make up around half of the SGL-4 universe, a weighting that has grown sharply over the past few months.

Liquidity rating downgrades have continued to outpace upgrades so far in May, at seven to two, and continue to be concentrated in energy, Moody's says. Downgrades of energy companies accounted for six of the 13 liquidity rating downgrades last month and for four of the seven in the first two weeks of May.