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BlackRock lowers view on U.S. corporate credit to neutral 

April 6, 2016

Richard Leong and Fiona Oritz, Reuters

BlackRock, the world's largest asset manager, downgraded its outlook on the U.S. corporate bond market to neutral from overweight as the sector has became pricier and shown risk of rising defaults, a top strategist at the firm said on Monday.

After a dismal start to the year, high-yield bonds have rebounded strongly since Feb. 11, according to Richard Turnill, BlackRock's global chief investment strategist.

For the first quarter, speculative-grade or junk bonds earned a total return of 3.25 percent, according to an index compiled by Bank of America Merrill Lynch.

"High yield isn't cheap anymore," Turnill said in a market commentary. "We view the risk of a recession as low, yet acknowledge default rates are ticking up."

He said credit rating agency Moody's Investors Service may be underestimating the potential for weakening credit availability among issuers in the oil and other commodity industries to spill over into other business areas, citing an estimated U.S. default rate of 4.7 percent in the next year from Moody's. Read more

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