Alternative data indicators show a nascent recovery in global trade, and certain economies’ employment. Daily financial data in May show tightening spreads, increased lending and lower equity market volatility in the US and euro area.

Liquidity for the weakest speculative-grade US corporates worsened in April as the coronavirus crisis continued to cut more deeply across most industries. Lower-rated companies that rely on the leveraged loan market, where liquidity has evaporated, are getting hit the hardest. But many stronger speculative-grade companies are able to tap the US high-yield market, which has recovered following the US Federal Reserve’s support for corporate bonds.

Our review of past recoveries shows that US companies that default because of the coronavirus pandemic will likely return less to investors than those that defaulted because of the 2008-09 recession, with prospects particularly poor for first-lien debt. We expect that more companies will complete distressed exchanges, and that many of those firms will later file for bankruptcy. Recoveries will be even worse in a prolonged downturn.