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The U.S. Distress Ratio Hovers Historically Low Despite Market Volatility

The U.S. distress ratio--the proportion of speculative-grade (rated 'BB+' or lower) issues with option-adjusted composite spreads of more than 1,000 basis points (bps) relative to U.S. Treasuries--remained at 2.4% as of April 19, 2022.

Russia-Ukraine Military Conflict: Key Takeaways From Our Articles

The Russia-Ukraine military conflict could have profound effects on macroeconomic prospects and credit conditions around the world. Leading up to, and during, the conflict, Western countries announced stringent sanctions on Russian entities and individuals, and Germany has suspended certification of the Nord Stream 2 gas pipeline.

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Our weekly ratings digest, including key themes, publications, ratings changes, asset class trends, financing conditions, and debt issuance.

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Credit Trends:

The European Speculative-Grade Corporate Default Rate Could Rise To 3% By March 2023

Published May 18, 2022

Risks are becoming wider and deeper. Inflation and interest rates have been rising quickly since the start of the year, and the ongoing Russia-Ukraine conflict raises more uncertainties, which could result in prolonged disruptions to Europe ranging from energy sourcing, trade, and agricultural shortages in the months ahead. China's zero-Covid policy has disrupted, and will continue to disrupt, global supply chains. We feel European speculative-grade issuers (rated 'BB+' and below) are less vulnerable to interest rate increases in the near term than in the U.S. (see chart 2), but more vulnerable to the various economic and geopolitical stressors. image

Global Structured Finance Defaults And Downgrades Eased In 2021 As The Sector Recovered From The Pandemic

Global structured finance's default rate declined to 0.6% in 2021 from 1.4% the prior year as the sector began to recover. – Default rates in 2021 were generally higher at lower rating categories, and of the 212 structured finance defaults that occurred, all but one was at the speculative-grade level.

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Sovereign Debt 2022: Borrowing Will Stay High On Pandemic And Geopolitical Tensions

We estimate sovereign borrowing will reach $10.4 trillion in 2022, nearly one-third above the average before the COVID-19 pandemic. Despite an economic recovery, we expect borrowing to stay elevated, owing to high debt rollover needs, as well as fiscal policy normalization challenges posed by the pandemic, high inflation, and polarized social and political landscapes.

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As the global credit markets move from crisis to recovery, we want to ensure you have access to the insights and forecasts you need. Subscribe to our fortnightly update which shares a curated list of the best thematic articles and topics from across S&P Global Ratings. Including podcasts, videos and upcoming webinars and events.

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Economic Research:

Emerging Markets: Where Is The Slack At The Sector Level?

Published May 11, 2022

Emerging Markets (EM) are facing a challenging period as they navigate through tighter monetary policy in the U.S., the repercussions of the Russia-Ukraine conflict, and the impact of COVID-19-related lockdowns in China. Those dynamics threaten to set back the economic recovery from the pandemic downturn, which in most EMs is far from complete as those new challenges emerge. But how incomplete is the recovery from the pandemic, and which parts of EM economies face a higher threat of setbacks from these set of new challenges? One way of answering those questions is by taking a look at output at the sector level, rather than the aggregate GDP level.

If we weer to just focus on GDP, the median major Em was nearly 3% above it's pre pandemic level as of end- 2021, which hides the large levels of slack many sectors of the economy still face. Recoveries in sectors with a lot of slack tend to be faster than those that are operating at higher capacity, and therefore are key in closing existing output gaps. If we look at sector- level data for 14 major EMs outside of China( Argentina, brazil Chile, Mexico, Colombia, india, Indonesia, Malaysia, Thailand, Poland, Saudi Arabia, South Africa, and Turkey), the median output of the 20 worst performing sectors is still 26.5% below pre- pandemic levels.

Global Economic Outlook Q2 2022

The Russia-Ukraine conflict's global macroeconomic effects for now seem moderate after a healthy start to 2022, including strong household balance sheets in the advanced economies. But risks are clearly on the downside: The conflict will influence direct trade effects, energy and commodity prices, confidence, and policy responses, particularly in China.

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Interest Rates To Rise Across Asia-Pacific

The inflationary impact of the Russia-Ukraine conflict and capital outflow pressure amid a more hawkish U.S. Fed will generally speed up monetary policy normalization in Asia-Pacific.

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Sustainable Finance:

Credit FAQ: Understanding S&P Global Ratings' ESG Credit Indicators

Published May 9, 2022

ESG credit indicators provide additional transparency on what's already incorporated into our credit rating analysis. They are another step in our efforts to enhance the usability and accessibility of our credit rating reports and related research. Through a simple numerical scale, they illustrate the ESG-related aspects of the credit rating analysis that are discussed in the body of our credit rating reports on rated entities. Together with the narrative discussion in our credit rating reports, ESG credit indicators help to further delineate and summarize the relevance of these ESG factors in our credit rating analysis.

In our credit rating analysis, we evaluate whether and/or how different credit factors have a negative or positive impact on creditworthiness; these can include ESG factors. Not all ESG factors materially influence creditworthiness. We incorporate ESG factors into our credit ratings when we believe they are material to creditworthiness and sufficiently visible. We refer to this subset of ESG factors as ESG credit factors. The influence of ESG credit factors can differ across industries, geographies, and entities. image

ESG Factors Influence Close To 1 In 4 Potential Downgrades As 2022 Unfolds

The number of potential downgrades decreased for the 17th consecutive month resulting in 2022 starting 60% lower than 2021. 24% of potential downgrades are influenced by ESG considerations, similar to December 2020.

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Global Sustainable Bond Issuance To Surpass $1.5 Trillion In 2022

S&P Global Ratings expects global issuance of sustainable bonds--including green, social, sustainability, and sustainability-linked bonds--will surpass $1.5 trillion in 2022. We believe sustainability-linked bonds will be the fastest-growing segment of the market. Green bonds will also see record issuance volumes in 2022, maintaining their position as the dominant sustainable bond category.

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