Monday, July 21, 2008
credit spigot shutting for corporates
Issuance slowed as the average spread on investment-grade bonds climbed to 7 basis points shy of its 2008 high and junk- bond spreads surpassed 800 basis points for the first time since March. Federal Reserve Chairman Ben Bernanke's forecast of weaker growth and accelerating inflation left few windows for treasurers to tap debt markets.
not for a lack of issuers...
``People have been waiting and waiting and there really hasn't been a good spot,'' said Brady, who helps oversee about $5 billion in fixed-income assets. ``The market hasn't really recovered.''
but for a lack of willing investors.
``You've seen some real ugliness in the high-yield market in the last couple of weeks,'' he said. ``It's really hard to get people to focus on new issues, on putting new risk in their portfolios, when they've already got a lot of the old risk.''
debt-financed corporations are being pushed to the brink by speculative high input costs, falling output revenues and crisis conditions in the credit markets that might otherwise sustain them through a rough patch.
as real defaults mount, i fear we may hear again from the credit default swap market. note that, while earlier bank estimates had a tenfold rise in defaults as a base case, comparisons have since arisen to previous downturns where high yield corporate defaults maxed out at over 10%.
UPDATE: more from ft -- the "year of the corporate default" is upon us.