S&P suspends forecast as higher rates slam brakes on the global bond market

Shares of S&P Global (SPGI) fell as much as 7.9% pre-market on Wednesday after the company warned of an “extraordinarily” weak bond market and suspended its full year forecast.

“Macroeconomic conditions have deteriorated since S&P Global last provided financial guidance on May 3, 2022, negatively impacting the Company’s expectations for GDP growth and debt issuance volumes,” the company said in a release early Wednesday.

“Given the volatility and uncertainty in the issuance environment,” the statement added, “the Company cannot affirm its previously issued guidance and expects to reintroduce formal financial guidance in conjunction with its second quarter 2022 earnings results.”

Shares of S&P’s ratings peer Moody’s (MCO) also fell 7.8% early Wednesday following this release.

Interest rates around the world have been on the rise this year, with central banks in the U.S. and abroad raising interest rates to combat higher prices.

On Tuesday, the eurozone reported the highest level of inflation since the inception of the euro in 1999. European Central Bank officials have suggested the ECB could end its years-long policy of negative interest rates later this summer.

Stateside investors continue to expect at least two more 50 basis point — or 0.50% — interest rate hikes from the Federal Reserve this month and next amid 40-year highs in inflation.

And with the quick rise in interest rates and changes in inflation expectations, fixed income markets have been pressured.

“Debt issuance volumes have been extraordinarily weak year-to-date,” S&P said in its release. “Should similar trends continue through the end of 2022, market issuance could see year-over-year declines in the high teens. Rated, or billed, issuance could be approximately 30-35% lower than the previous year, and leveraged loan volumes could be approximately 40% lower.”

“In such a scenario,” the company added, “Ratings revenue could be negatively impacted by as much as $600 million relative to previous revenue guidance and the Company would expect Ratings adjusted operating margin in the high 50s range.

Through Tuesday’s close, shares of S&P Global had lost about 25% so far this year.

“At this point,” S&P noted, “the Company does not expect a change to its previously stated capital return targets.”

Myles Udland is the senior markets editor at Yahoo Finance. Follow him at @MylesUdland

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