The long-awaited infrastructure passes the House
With bipartisan support, the House of Representatives passed the $1.2 trillion infrastructure bill last Friday evening. The bill, widely viewed as expanding job and economic growth over the medium- to long-term, targets infrastructures investments to roads and bridges, high-speed rail, broadband Internet, electric grid improvements, electric-vehicle charging, clean drinking water, airports, road safety, and the modernization of public transportation. Spending for the bill is derived from both savings and new revenue including roughly $200 billion in unused COVID-19 relief funds, unused Medicare rebates, unused unemployment insurance funds, and revenues generated from cryptocurrency reporting requirements. In August, the Congressional Budget Office (CBO) estimated that the approximately $1 trillion package would add roughly $256 billion to the Federal deficit from 2021 to 2031; however, the CBO analysis provides credit for only about $13 billion over ten years regarding the repurposed $200 billion from COVID-19 aid.
Upgrades slowed from the brisk pace over the summer, but IG indexes have not retraced all downgrades from 2020
Between April and July, the market was looking at a record pace of net upgrades with $116 billion of debt upgraded per month; however, this trend has slowed with only $19.2 billion of debt upgraded in October. Despite improving credit fundamentals (U.S. IG leverage declined below 2019 levels in Q2), corporate IG indexes have only seen about 50% of the downgrades experienced in 2020 retraced. The early onset of COVID-19 resulted in the two largest downgrade months in history with $528 billion of downgrades in March 2020 and $409 billion in April. For the indexes, the average credit rating has declined from highs seen in 2019; we expect this to take some time to improve, especially given the attractiveness of issuing debt in a low rate environment and supply chain shortages that have capped the growth of global economies in the short-term.