(Bloomberg) -- Netflix Inc., The Kraft Heinz Co. and other bond issuers look like they'll get swept up in the biggest wave of credit-rating upgrades the U.S. has seen in more than a decade -- a sign the recovery from the pandemic is accelerating.
The Covid-19 recession had spurred the most downgrades since the 2008 financial crisis, but corporate balance sheets have improved markedly since then. The amount of investment-grade debt being evaluated for an upgrade has swelled to $203 billion, the most since 2010, Bank of America Corp. strategists led by Yuri Seliger wrote in a report Tuesday.
Junk-rated companies should benefit, too. Dell Technologies Inc. has already been lifted to investment-grade status from junk. Netflix and Kraft may also get there, according to Bloomberg Intelligence. Winnie Cisar of CreditSights sees more so-called rising stars emerging in 2022, boosting their bond returns.
“Firms that may be up next in the rising-star category should see spreads tighten as investors anticipate more upgrades,” said Cisar, the firm's global head of strategy. If the wave of upgrades holds, companies that have high-yield status might take advantage of the “continued fundamental momentum” to seek better grades, she said.
Read More: Buy Signal for U.S. Credit as Good Balance Sheets Spur Upgrades
However, Dominique Toublan, head of U.S. credit strategy at Barclays Plc, wrote in a note Friday that impending upgrades to high-grade from junk status have mostly been factored into the price of bonds -- limiting the scope for juiced-up returns in the future.
Elsewhere in credit markets:
Americas
ZipRecruiter Inc. is set to sell $500 million of junk bonds Friday in its debut debt issuance, while U.S. high-grade primary sales are expected to be muted after almost $60 billion priced in the first four days of the new year.
- Investment-grade bonds have lost 1.61% in 2022 after falling the first four days of the week; Monday's decline was the biggest since March 2020
- At least two deals in the leveraged loan market have commitments due Friday
- Virtu Financial Inc.'s $1.8 billion loan was brought forward to Friday and will fund refinancing and share repurchases
- Dun & Bradstreet Holdings Inc.'s $460 million sale to redeem notes is also expected to close the books
- The judge overseeing the reorganization of opioid maker Mallinckrodt Plc questioned the fairness of a plan to protect company executives and others from future lawsuits
- For deal updates, click here for the New Issue Monitor
- For more, click here for the Credit Daybook Americas
- Next week, banks and other financial institutions are set to drive issuance following mandates from Aareal Bank, CPI Property Group, Logicor, Motability and UniCredit Bank
- Issuance in the Asia ex-Japan primary dollar bond market jumped this week, with jumbo debt offerings from India's Reliance Industries and Hong Kong's airport authority offsetting a slump in deals from mainland China
- Primary issuance in Asia ex-Japan surged to about $12.2 billion, the highest in 11 weeks, according to data compiled by Bloomberg
EMEA
Europe's primary market ended the week with a single deal as holidays stalled the start of 2022 issuance.
Asia
China called on banks to boost real-estate lending in the first quarter and eased a key debt restriction for developers, a sign that authorities are becoming increasingly concerned about the industry's liquidity crisis.
©2022 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
