Corporate liquidity stress is continuing to ease a bit this month says Moody’s Investors Service in a report released Wednesday.
The rating agency’s Liquidity Stress Index (LSI) improved a bit in the first two weeks of July, slipping to 8.6% from 8.7% at the end of June, the Moody’s report says. The index, which declines when liquidity improves, is down from 10.3% in March.
“The LSI has improved on the back of negative developments, such as defaults in the energy sector, as well as positives, including modest economic growth and a more vibrant new issue market,” says John Puchalla, senior vice president at Moody’s. “And despite initial nervousness, markets have mostly settled again since UK voters opted to leave the European Union.”
The LSI is still above its historical average, the report notes, and that there are “residual default risks in the energy sector”, in particular. Indeed, the rating agency forecasts that the U.S. speculative-grade default rate will rise to 6.4% by the end of the year, before it heads lower.
Additionally, Moody’s Covenant Stress Index, which measures the extent to which speculative-grade companies are at risk of violating their debt covenants, improved to 5.7% in June. This is down from 7% in April.