Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

Us Junk-bond Defaults May Quadruple

Recommended Posts

http://business.timesonline.co.uk/tol/busi...icle4454248.ece

Defaults on American corporate junk bonds could more than quadruple in the next year as the declining economy in the United States severely restricts companies' ability to repay their debts, the Standard & Poor's ratings agency has said.

The rate of default on America's risky junk, or high-yield, corporate bonds jumped from a 25-year low of 0.97 per cent in December to 1.92 per cent at the end of June.

However, S&P said that it expected the figure to rise to 4.9 per cent by mid- 2009 and conceded that defaults could rise as high as 8.5 per cent.

By contrast, there have been no defaults on European corporate bonds in the past year, according to S&P's new report.

A default on the debt usually leads to bankruptcy and means that bondholders lose some or all of the money they are owed. Diane Vazza, head of global fixed-income research for S&P, said: “Things are going to get much worse yet. The situation in Europe will follow the US.”

The increase in US corporate bond defaults has been accompanied by a rise in the number of household names whose bonds are slipping from relatively safe investment-grade status to junk. In the past 18 months, these have included BAA, the airports operator, and Emap, the media group.

Does anyone know if this lazy journalism as the current rate of default is very low a quadrupling isn't something to be worried about?

I'm always a bit wary about stats like this because the current rate could be 5 and it will go up to 20, but then I suppose it depends on who defaults if it's GM or Ford it would be something to be worried about.

What's the previous effects of slow down / recession on junk bond defaults? Is a quadrupling "normal" at this point in the cycle?

Share this post


Link to post
Share on other sites
quadrupling of anything must be alarming but especially default rates

I think this expectation is pretty much priced into the credit markets. The ITRAXX Crossover mainly consists of junk bonds and trades at around 530bps. There are 50 names in the index, and assuming a recovery rate of 40% means that people are (very roughly) expecting around 3/4 names to default per year/6%

Share this post


Link to post
Share on other sites

Now, if CGNAO had been here that would have been accompanied by impoosible charts, and Apollo moon rockets 100% guaranteed.

You're lacking the vital element of panic.

Where is the old boy anyway?

Share this post


Link to post
Share on other sites
I think this expectation is pretty much priced into the credit markets. The ITRAXX Crossover mainly consists of junk bonds and trades at around 530bps. There are 50 names in the index, and assuming a recovery rate of 40% means that people are (very roughly) expecting around 3/4 names to default per year/6%

Alternatively, you can look at the prices that US high yield debt is trading at and see the same thing. The yields are a lot higher than the current default rate would imply meaning the market has already priced in a lot of future pain.

Share this post


Link to post
Share on other sites
Now, if CGNAO had been here that would have been accompanied by impoosible charts, and Apollo moon rockets 100% guaranteed.

You're lacking the vital element of panic.

Where is the old boy anyway?

Fear not, CGNAO is alive and well ;)

Share this post


Link to post
Share on other sites

Surely what we need is some kind of inverse to the A* introduced to GCSEs as a normal A was too piss easy to get if you could write your own name and knew that a triangle had 3 sides.

In other words, don't we need new sub-junk ratings? If default rates are low on junk, then the word "junk" seems a tad harsh. Any suggestions for a new sub-junk name? How about Crock? :lol:

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 396 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.