Junk Bond Covenants Less Strigend Than Their Previous Junk Deals.....

Let´s be generous and call this kind of datapoint "frothy"...... ;-) Make sure you take a closer look at the stunning example provided in the update at the end of the post........

Höflich formuliert dürften Daten wie diese als "überschäument" durchgehen.... ;-) Verweise in diesem Zusammenhang ausdrücklich auf das Beispile das ich am Ende des Postings im Update verewigt habe.....

Bond Markets Get Riskier WSJ

One of the worrisome developments is occurring in the junk-bond market, where companies are taking advantage of strong demand to sell bonds that have fewer protections for investors than similar bonds sold by the companies in years past.

Some have watered down covenants, which are supposed to protect investors if a company is sold and prevent companies from loading on too much other debt or paying out their cash, which would cause a drop in value of the bonds or make it less likely the bonds they hold would get paid off.

Fifty-seven percent of junk-bond issuers had less-stringent covenants than their previous junk deals, according to an analysis for The Wall Street Journal by Covenant Review which analyzed 58 junk bonds issued in 2010 by companies that previously had issued debt. Just one deal had stronger covenants for investors. Some 41% of the deals had the same covenants.

"It reflects a weakening in covenant protections even below those existing at the peak of the market, in 2006 and 2007," Alexander Dill said in a May report from Moody's.

Junk bond prices hit pre-crisis levels FT

Strong investor demand for junk bonds has pushed the average price on such corporate debt to its highest level since June 2007, when companies could borrow with ease at the height of the credit boom.

The Bank of America Merrill Lynch index used by many investors to track the junk bond market – bonds sold by companies with credit ratings below investment grade – rose last week above 100 for the first time since the start of the credit crunch.

Dealogic, the data provider, said junk bonds sold to US investors so far in 2010 reached $168bn (€129bn) last week. This is more than was marketed in the whole of 2009, when the $164bn total set a record.

Mr Fridson said the average spread was 625 basis points over US Treasuries, still far above the level of June 2007, when spreads reached lows of close to 250bp.

In general i agree with the following statement and especially the headline "desperately seeking income" .... But signs of some kind of "serious excess" are clearly growing on a daily basis.....

Trotz allem kann man zumindest den Run in Sachen Unternehmesanleihen mehr als nachvollziehen.... Denke besonders die Überschrift "Einkommen verzweifelt gesucht" trifft den Nagel auf den Kopf..... Die Warnhinweise für eine gewisse "Sorglosigkeit" wachsen tagtäglich.....

Desperately seeking income FT Alphaville

...because corporate credit represents an attractive middle ground between equities and government bonds for income hungry investors

One can, of course, question the wisdom of piling into junk but given the paucity of alternatives it is understandable.

Things could really be getting "interesting" if the composition shifts away from the "refinancing" aka "extend & pretend" part..... I´m also sceptical that the markets have finally realised that this is "Not Your Father´s Recovery" & the deleveraging cycle is still in the first inning ( see Clevelend Fed "One Measure Of Corporate Leverage Recently Reached A New Historical High" ) .....

Denke das spätetstens wenn eine Verschiebung weg vom Refinanzierungs bzw "Extend & Pretend" Segment zu beobachten ist, die ganze Angelegenheit recht schnell mehr als "ungemütlich" zu werden droht....Bin mir zudem ziemlich sicher das der Markt noch immer nicht realisiert hat das die bisherige Erholung historisch gesehen nicht gerade "eindrucksvoll ausgefallen ist und das entgegen der täglichen Meldungen slebst bei den Firmen die "Entschuldungsphase" noch nicht wirklich aus dem Startblock gekommen ist ( siehe Clevelend Fed "One Measure Of Corporate Leverage Recently Reached A New Historical High" )....

Junk windfall Moody´s via FT Alphaville

Wouldn´t surprise me if the topic I Want My Buyback Back.... will be again on the agenda within 12-24 months....

Würde mich nicht wundern wenn das Thema I Want My Buyback Back.... binnen absehbarer Zeit erneut zu zweifelhaften Ruhm kommen wird.....

UPDATE:

NYT DealBook

THIS summer, executives from the New York-based private equity firm SK Capital traveled to Houston to celebrate the first anniversary of their acquisition of a nylon manufacturing business. Soon they will have a bigger reason to uncork the Champagne.

The nylon manufacturer has announced plans to issue about $1 billion in debt, of which $922 million will be used to pay a dividend to SK. For SK, which paid $50 million in cash for the business, that is an astonishing almost 18-fold return in a little more than a year.

Profit Margins, Margin Debt & Margin Of Error.......

Combine the data points with the excellent When Risk-Return Makes No Sense: How To Deal With An Overvalued Market and it should be clear that Mr. Market is walking on very thin ice now... I must admit that this is my view since September/October......Cannot help but it at least smells a little bit like "Flucht In Sachwerte"... I still think that the risk / reward is far more favourable in GOLD... ;-)

Wenn man die folgenden Daten mit dem extrem lesenswerten When Risk-Return Makes No Sense: How To Deal With An Overvalued Market kombiniert wird klar das man sich momentan auf sehr dünnem Eis bewegt.... Muß gestehen das ich diese Ansicht seit dem September/Oktober vertrete.... So langsam kann man zumindest unterschwellig das Gefühl haben das zumindest in Teilen eine "Flucht In Sachwerte" eingesetzt hat.....Bin mehr denn je überzeugt das in Sachen Chance/Risiko die Aussichten für GOLD weitaus vielversprechender sind.... ;-)

William Hester / Hussman Funds

While earnings growth expectations are steep, sales growth expectations are more modest. Sales-per-share for S&P 500 companies is expected to grow about 5.5 percent this year and about 7 percent next year, according to forecasts. The difference between the growth rates of the top and bottom lines is implies a forecast for sharply rising operating profit margins. The graph below is updated from an earlier piece, and includes forecasts through the end of 2012. It plots the long-term level of S&P operating margins in blue. In red, I've plotted the operating margins currently being forecasted by analysts based on their projections for sales and earnings. Last October, analysts were about half way to pricing in profit margins that matched the record levels of 2007. Now, they are just about there.

David Rosenberg / Gluskin Sheff

As for 2011, the consensus is looking for $97 on S&P 500 operating EPS — we did $95 at the peak of the last cycle when the unemployment rate was at 4.5%, the industry CAPU rate was 81%, private sector credit xpanding at a 16.2% annual rate and nominal GDP at a 4.9% YoY pace.

So the consensus believes that barely two years into the second weakest post-recession recovery in the past six decades that we will actually get back to peak profit levels seems to be a tad outlandish.

Stock Market Rally Explained The Mess That Greenspan Made

Ad in the the Money & Investing section of today’s Wall Street Journal

Factoring in the tight junk spreads right now one must assume that looking at the next chart the "Margin Of Error" is probably "slim"......

Da momentan selbst historisch gesehen recht enge Junk Spreads vorherrschen muß man beim Anblick des nächsten Charts wohl unterstellen das in Sachen "Margin Of Error" wenig "Spielraum" bleibt.....

Investors really ♥ junk. We mean really. FT Alphaville

In most discussions of the high-yield bond market, historical spreads play a major role. But comparing spreads today to those of the past assumes that junk bonds are a constant entity over time. Unfortunately, junk is junkier today, as illustrated by this chart [at left] from last October’s Global Financial Stability Report.

The fraction of CCC or lower-rated bonds approximately doubled from early 2007 to early 2009. And according to a recent report from Fitch, the fraction at the end of 2009 was still 27%.

Debt ranked in the BB category gained 39.1 percent in the past 12 months, underperforming the CCC tier by 66 percentage points, according to Bank of America Merrill Lynch index data.

H/T EconomPicData

The "risk trade" is currently clearly not in the early innings....... Looks like the Mantra Bullish. No Matter What & the "Moon Trade" ( brilliant!) is still alive & kicking.... ;-)

Der sog. "Risikotrade" befindet sich sicher nicht mehr im "Anfangsstadium"..... Sieht so aus als wenn das Motto Bullish. No Matter What sowie Ladies and Gentlemen, We Are Trading On The Moon ( brilliant!) momentan noch immer zu greifen scheint...... ;-)+

UPDATE:

PARTS OF THIS MARKET ARE LOOKING IRRATIONAL PragCap

Why Young People Should Buy Stocks on Margin Time H/T Denninger

We just survived the worst debt-fueled binge since the Roaring '20s. Now two professors at Yale University are suggesting we introduce leverage into a new realm of our lives —our retirement portfolios. TIME's Barbara Kiviat asked economists Ian Ayres and Barry Nalebuff to explain themselves.

You are advocating that people in their 20s and early 30s take all of their retirement savings and buy stocks on margin. Can you explain why that's not as crazy as it sounds?

"It's not as crazy as it sounds because it helps people better diversify risk across time"

Read this twice....

UBS: EQUITY MARKET RISKS APPROACHING EXTREMES PragCap

Irrational Exuberance Is Here: VIX Lowest Since July 2007 As Options Speculation Highest Since Dot Com Days

The VIX has just hit the lowest level since July of 2007 as Sentiment Trader reports that "speculation in the options market has spiked to its highest levels since the spring of 2000."

As i´ve said, not in the early innings.....

Wie gesagt, nicht mehr im Anfangsstadium......

Foreigners Holding 75 % of Greece’s Current Debt Stock

One of the main reasons why the "Smoke & Mirrors" ( excellent link via Yves Smith / NC ) Greece "Rescue" & a hidden bailout ( see the ECB U-TURN My Big Fat Greek Collateral Conversion ) has been orchestrated..... It´s still the number one goal to bail out banks & insurers ( see PIIGS Claims On European Banks: $1.5 Trillion; France Most On Hook In PIIGS Implosion & Ireland Stunned To Uncover "Truly Shocking" Information By Its Banks ).....Nobody is too small too fail....Sarcastically one can argue that in hindsight it seems the Lehman "incident" was one of the best things that could have happened to the industry......

Denke das wir hier einen der Hauptgründe für den "Smoke & Mirrors" ( fantastische Zusammenfassung via Naked Capitalism ) Rettungsversuch bzw die indirekten ( siehe die 180 Grad Drehung der EZB My Big Fat Greek Collateral Conversion ) Bailoutbemühungen sehen.... Es geht wie leider immer noch darum Banken und Versicherungen vor möglichen Schäden zu "beschützen" ( siehe PIIGS Claims On European Banks: $1.5 Trillion; France Most On Hook In PIIGS Implosion & Ireland Stunned To Uncover "Truly Shocking" Information By Its Banks )...... Keiner ist unwichtig genug um zu fallen...."Spitz" formuliert könnte man fast meinen das im Nachhinein Lehman für die Branche der bestmöglich anzunehmende Unfall gewesen ist......

The kindness of (bond market) strangers FT Alphaville

With foreigners already holding three quarters of Greece’s current debt stock, convincing them to buy even more becomes increasingly difficult. Here’s what Deutsche’s Gillian Edgeworth says:

"Euroland insists that the Greek sovereign continues to access the market if possible. The sovereign issuer will hope that foreigners remain keen buyers of bonds, though foreigners already hold 75% of the total debt stock.

In the absence of further foreign buying, local institutions will only likely be able to absorb government issuance if domestic banks continue to draw off [European Central Bank] liquidity facilities in size."

Lucky, then, that the ECB decided to revise its acceptance rules for the collateral pledged by Greek banks on Friday

Too bad for the "architects" that so far the spreads havn´t narrowed in a meaningful way.....;-)

Leicht problematisch für die Bailoutakrobaten lediglich das sich zumindest momentan die Spreads nicht wesentlich "eingeengt" haben...... ;-)

Greek debt – spreading like it’s 1999 FT Alphaville

It looks like Hellenic Republic bond spreads over German bunds are back at 1999 levels — when Greece first attempted to join the eurozone but failed because it didn’t meet the required economic criteria

No wonder Gold has been hitting a series of new ATH in € terms ...

Da verwundert es wenig das Gold seit Wochen eine Serie von neues Allzeithoch auf € Basis markiert.....

Don´t Call It A Bubble........

After the introduction of the "Pay-If-You-Can-Loans" the comeback of Toggle/PIK Bonds are more than early warning signs that something is at least a little bit "frothy"...... The same is true for numerous stock markets ( see the following chart Mexican Stock Market Back To All Time Highs WOW!)

Nachdem ja vor kurzem die "Pay-If-You-Can-Loans" ins Leben gerufen worden sind ist die noch vor wenigen Monaten undenkbare Wiederaufersteheung der Toggle/PIK Bonds ein weiteres Anzeichen, das nennen wir es mal vorsichtig, eine leichte "Überhitzung" eingetreten ist.... Leider sieht es in etlichen Aktienmärkten nicht bedeutend anders aus ( siehe nachfolgden Chart Mexican Stock Market Back To All Time Highs WOW! )

Treasurers Embrace Pay-in-Kind Bonds as Ghost of Lehman Fading
( Bloomberg ) Companies are selling debt with terms last seen before credit markets froze, showing why the world’s biggest bond fund manager says another bubble may be brewing.

JohnsonDiversey Holdings Inc., a Sturtevant, Wisconsin, maker of cleaning supplies, and Wind Acquisition Holdings Finance SpA, parent of Italy’s third-largest mobile-phone company, sold bonds that can pay interest in new debt instead of cash, the first such deals since 2007, according to Bloomberg data.

Goodman Global Inc. raised $320 million to pay its owner, leveraged buyout firm Hellman & Friedman, a dividend, one of at least seven similar offerings since November

Two years after credit markets seized up, treasurers are luring investors to junk bonds that returned a record 58 percent last year, as measured by Bank of America Merrill Lynch indexes. U.S. sales of $162 billion beat the all-time high of $149 billion in 2006, Bloomberg data show.

“Six months ago I wouldn’t have imagined being able to do this deal,” said Karim-Michel Nasr, head of corporate development in Paris at Weather Investments SpA, Wind’s holding company.....

Capital Access

At least two dozen borrowers since November have asked lenders to change terms of debt agreements to permit bond sales, extend loan maturities or pay dividends to their owners, Bloomberg data show.

Access to capital means defaults will likely drop to 3.9 percent by November from 12.7 percent a year earlier, New York-based Moody’s Investors Service says.

Speculation that companies will have less difficulty making payments has led investors to accept lower interest rates and looser borrowing terms. The extra yield demanded on junk bonds instead of Treasuries narrowed to 6.39 percentage points at the end of 2009 from almost 19 percentage points on March 9, Merrill Lynch indexes show. Speculative grade debt is rated below Baa3 by Moody’s and BBB- by Standard & Poor’s.

‘We Forget’

“I’m looking at some of the things that are being priced and I’m saying, ‘Wow, how quickly we forget,’” said JohnsonDiversey Chief Financial Officer Joseph Smorada. The market is “starting to get a little dangerously aggressive,” he said.

The company sold $250 million of so-called toggle debt due in May 2020 on Nov. 20 that allows it to pay a 10.5 percent interest rate either in cash or notes for the first five years.

The first pay-in-kind bonds since 2007 were part of a $2.6 billion recapitalization in which New York-based LBO firm Clayton Dubilier & Rice Inc. agreed to buy a 46 percent equity interest in the company.

Moody’s gave the notes its fifth-lowest ranking of Caa1, saying the debt is five times more than adjusted earnings before interest, taxes and amortization costs. It has had negative free cash flow the past three years, though it’s expected to break even in 2010, Moody’s said.

‘Dangerously Aggressive’

“In early 2009, I don’t think we could have borrowed a nickel if our life depended on it,” Smorada said. Investors submitted bids for almost four times the amount of notes offered, he said.

Investors haven’t lost discipline and companies are mainly selling bonds to refinance or cut interest expenses, said William Cunningham, the head of credit strategy and fixed-income research at State Street Corp.’s investment unit in Boston.

Wind Acquisition of Luxembourg raised $1.1 billion last month selling 7.5-year, 12.25 percent notes in dollars and euros that allow it to pay interest with more debt until 2014. Wind, controlled by Egyptian billionaire Naguib Sawiris and the parent of Wind Telecomunicazioni SpA, boosted the offering 50 percent as demand rose.

The investment flood has undercut efforts to toughen restrictions that protect investors, said Alexander Dill, senior covenant officer at Moody’s in New York. Many covenants are “largely replicating” rules from 2006 and 2007, Dill said in a Dec. 10 report.

TRW Automotive Inc., the world’s biggest supplier of vehicle-safety equipment, sold $250 million of eight-year notes in November rated Caa1 with covenants “substantially unchanged” from its 2007 indenture for debt graded four steps higher at Ba3, according to the Moody’s report. The Livonia, Michigan-based company said Dec. 22 it raised $400 million in term loans as lenders amended and extended its revolving credit facility.

FT Alphaville

Global high yield debt volume for the week of January 11th totaled $11.7 billion, the biggest week for high yield debt on record. The previous record was set during the week of November 5, 2006 when $11.4 billion was raised. With $14.4 billion raised so far this month, it is the best all-time start for the high yield markets since records began in 1980.

Update High Yield Bonds Continue To Do Well Bespoke

Over the past month or so, the only area of the bond market that has done well is junk. Both Treasuries and investment grade corporates have struggled, while high yield bonds have continued to surge. Below we highlight a six-month performance chart of the high yield bond ETF (HYG) and the investment grade corporate bond ETF (LQD).

Mortgage-Bond Leverage Reaches 10-to-1

Wall Street firms are loosening terms of their lending to mortgage-bond investors as markets heal, an RBS Securities Inc. executive said.

Repurchase agreement, or repo, lending against the debt has expanded so much since freezing in late 2008 that some banks now offer as much as 10-to-1 leverage and terms as long as one year on certain securities backed by prime jumbo-home loans

Update

Bubble warning ( Economist )

Once again, cheap money is driving up asset prices ( Economist )

Ladies and Gentlemen, We Are Trading On The Moon :-) Reformed Broker

ECB: Record 442 billion Euros “Stimulus by Stealth”

HT to Alea for the excellent headline. After reading the latest ECB "Instability" Report....... & the almost irresistable conditions ( despite news like this ECB Tightens Rules On Liquidity Facilities & Adjustment of risk control measures for newly issued asset-backed securities and for uncovered bank bonds ) it is no surprise to see such a huge number. .......A no brainer...... I can imagine Trichet is already praying that this will work.....I have some serious doubts......Liquidity is & was not the issue..... Core problems ( impaired bank balance sheets, not enough creditworthy borrowers ) are still unsolved and are getting worse on a daily basis..... Update : Spanish banks to get €90 billion bailout

Dank an Alea für die sehr treffende Überschrift. Nachdem ich den letzten ECB "Instability" Report....... gelesen habe und wenn man die unwiderstehlichen Konditionen ( trotz leicht verschärfter Bedingungen / siehe ECB Tightens Rules On Liquidity Facilities & Adjustment of risk control measures for newly issued asset-backed securities and for uncovered bank bonds ) berücksichtigt dürfte die Höhe nicht wirklich überraschen. Eine echte Lizenz zum Gelddrucken.....Kann mir bildlich vorstellen wie Trichet & Co beten, das dieser Kraftakt endlich dazu führt, das die Kreditmärkte wieder wie gewünscht funktionieren ( Update Banken tragen Milliarden zurück zur EZB ).... Ich denke das auch dieser Versuch maximal etwas Linderung in Form von geringeren Spreads verschaffen wird..... Dummerweise ist mangelnde Liquidität nicht das Problem. Solange die Problematik der bilanztechnisch insolventen Banken nicht gelöst wird und man anerkennt das es im Angesicht einer lang anhaltenden Rezession einfach zu wenig kreditwürdige Unternehmen gibt, dürfte sich die Lage weiter verschlechtern. Wenn man so will handeln die Banken aus Ihrer Sicht ironischerweise momentan das erste Mal nach Jahren der "Trunkenheit" richtig. Tragisch aus deutscher Sicht ist vor allem das unser Bankensystem trotz fehlender eigener Blase dank der desaströsen Exzesse besonders der Landesbanken ( folgerichtig kommen die Sparkassen als Anteilseigner dank massivster Wertberichtigungen auf Ihre LB Anteile in ernste Schieflagen, was das besonders für den Mittelstand bedeutet kann man leicht erahnen..... ) eher einen bzw. den Spitzenplatz der Problemliste belegt..... Updadte: EZB pumpt Rekordbetrag in den Markt FTD & Spanish banks to get €90 billion bailout


ECB pumps €442bn into banking system FT
The European Central Bank on Wednesday pumped hundreds of billions of euros in one-year loans into the eurozone’s weakened banking system, making record amounts of emergency finance available in a bid to unlock credit markets and revive the region’s economies.

In a dramatic step dubbed “stimulus by stealth” in financial markets, the ECB lent €442.2bn for 12 months to more than 1,100 banks at its current benchmark interest rate of 1 per cent.

The high demand for the funds, in what was the ECB’s first ever auction for one-year loans, reflected a growing realisation by the banks that emergency funding may not be available again on such favour-able terms.

The central bank’s action could boost the eurozone’s recovery prospects by lowering market interest rates and creating more scope for banks to lend to the private sector.

The ECB action, which attracted 1,121 bidders – more than usual in ECB operations – had an immediate impact in driving down overnight and longer-term market interest rates, though the full effects are still to feed through.

Don Smith, economist at inter-dealer broker Icap, said: “The massive scale and undoubted success of this tender almost entirely reflects the cheapness of the funds on offer.”

The previous largest amount injected in a single ECB operation was €348.6bn in December 2007.

The economic impact will depend on whether demand for liquidity in future ECB market operations is reduced as a result of Wednesday’s action, as well as whether banks step up lending.

“They must pass it along,” Lorenzo Bini Smaghi, an ECB executive board member, said in Rome.

> "...must pass it along" This kind of rhetoric will only be working in China ( see Number Of The Day "Credit Explosion In China" & todays must see Borrowed in China from FT Alphaville ). Probably ( after FT Alphavilles update DEFINITELY ) the NPL from the not so distant future...... Smaghi probably one of the ECB members pressing for "quantitive easing" ( despite intense discussions among the ECB members so far almost non existent ).......

> "...must pass it along" Wird wohl ein Wunschgedanke bleiben..... In China sieht das momentan ganz anders aus ( siehe Number Of The Day "Credit Explosion In China" sowie die aktuellen Daten für Juni Borrowed in China WAHNSINN!). Da wird solchen Wünschen wenn Sie von der richtigen Stelle geäußert werden "bedingungslos" Folge geleistet. Die Chancen das es sich um die faulen Kredite von morgen handelt sind nicht zu unterschätzen ( nach dem Update von FT Alphaville eine "leichte" Untertreibung )...... Unschwer zu erkennen das Smaghi eher dem Camp innerhalb der EZB angehört die PRO "Quantitive Easing" ( bisher trotz intensiver Diskussionen praktisch kaum vorhanden ) sind......

WSJ

By promising a full allocation of all bids on Wednesday, the ECB has effectively passed responsibility for any easing of policy to the banks themselves, giving license to any institution that thinks it can lend the money profitably into the real economy.

AJ via Alea

“If I were a bank I would be gathering up all the furniture to use as collateral to take part.” said Erik Nielsen, European economist at Goldman Sachs.

AMEN!

Failed Korean Debt Sale

With tsunamis of sovereign debt being issued around the globe i think news like this will pop up on a regularly basis ( especially for those countries mentioned in So Begin The (Serious) Sovereign Downgrades…? ). This also raises the question what will happen to spreads on corporate bonds ( see Death of Corporate Bonds Is Worth Investigating from William Pesek/ Bloomberg ) .... It will be interesting to see if some countries will be forced to issue debt in foreign currencies if even higher yields are failing to attract enough investors.....And lets all hope that the central banks are resisting the call to be the buyer of last resort ( monetize the debt )..... This would almost definitely lead to trouble down the road......

Mit der nicht enden wollenden Flut an neuen Staatsschulden rund um den Globus dürften vergleichbare Meldungen bald öfter über die Ticker laufen ( verweise in diesem Zusammenhang auch besonders auf die Staaten die in dem folgenden Link angesprochen werden So Begin The (Serious) Sovereign Downgrades…? ). Desweitern muß man sich fragen was solche Ereignisse für Unternehmensanleihen bedeuten ( sieheDeath of Corporate Bonds Is Worth Investigating from William Pesek / Bloomberg ) ..... Entscheidend wird sein ob bestimmte Staaten gezwungen werden einen Teil Ihrer Verbindlichkeiten in Fremdwährungen zu begeben wenn selbst steigende Renditen nicht mehr ausreichen um genügend Investoren anzuziehen..... Bin gespannt ob auch dann die Notenbanken sich dem Druck widersetzen und nicht als Käufer auftreten ( sprich die Notenpresse anzuwerfen )......... Das dürfte eher früher als später zu großen Problemen führen.....

Korea Fails to Meet Target in Bond Sale for 2nd Month

South Korea failed to meet its target at an auction of 10-year bonds for a second consecutive month on concern that the nation will increase debt sales to fund stimulus spending.

The government raised 584 billion won ($415 million) at today’s sale, less than the 800 billion won targeted, after investors offered to buy 604 billion won, the finance ministry said on its Web site. The securities were sold at an average yield of 5.2 percent, higher than the 5.1 percent the market expected, said Kim Do Sung, a futures trader with PB Futures Co. in Seoul.

“The market has shown little interest in longer-dated debt,” Kim said. “The trend may continue for a while as concern about oversupply lingers.”

Investors including Pacific Investment Management Co., which runs the world’s biggest bond fund, and DBS Asset Management Ltd., are avoiding long-term securities as governments fund extra spending by increasing debt sales. Asian nations have pledged an additional $685 billion over the next five years to support growth after recessions in the U.S., Europe and Japan caused exports in the region to collapse.

In a Jan. 19 auction, the Korean government sold 426 billion won of similar-maturity debt, failing to raise a planned 800 billion won. Malaysia attracted bids for 1.46 times the 3.5 billion ringgit ($967 million) of five-year notes sold on Jan. 22, the weakest bid-to-cover ratio since May 2008. The Philippines rejected all bids from investors for 7 billion pesos ($148 million) of treasury bills at an auction on Feb. 9 in Manila.

Curve Steepens

The extra yield that investors are asking to hold 10-year Korean bonds over those maturing in three years widened to 1.63 percentage points last week, the most since November 2001. The spread was 81 basis points at the end of 2008.

Asian local-currency government bonds have handed investors a 4.3 percent loss this year, after rallying 9.7 percent in December, when interest-rate cuts by central banks drove down yields, according to indexes compiled by HSBC Holdings Plc.

Borrowing costs will climb in the region this month as policy makers increase spending to revive their economies, Mirae Asset Investment Management Co. and CIMB-Principal Asset Management said.

India, the Philippines, Thailand, Korea and Malaysia were scheduled to sell at least $3.8 billion of local-currency bonds maturing in 10 to 30 years in February.

“The deeper the recession, the more the stimulus and the more the bond supply,” Kim Sung Jin, head of debt investment at Mirae, South Korea’s biggest asset manager with the equivalent of $43 billion under management, said last week. “The long-end maturities are the most vulnerable.”

Yields Rise
South Korea has already allocated 51 trillion won in tax cuts and infrastructure projects to shore up the economy, and the government needs to increase its budget spending to revive growth, Deputy Finance Minister Noh Dae Lae said on Feb. 12.

The yield on Korea’s 10-year government debt rose one basis point, or 0.01 percentage point, to 5.20 percent today compared with 4.22 percent on Dec. 31, according to Korea Securities Dealers Association. The rate averaged 5.15 percent over the past five years, according to data compiled by Bloomberg.

“Asian local-currency yield curves have bear-steepened so far this year on supply concerns, but more steepening lies ahead as 10-year yields remain below their long-term averages,” said Jens Lauschke, a fixed-income strategist at DBS Group Holdings Ltd. in Singapore.

Number Of The Day " Percentage Of US Companies With A Junk Rating"

This at the start of a deep and long recession...... After the events of the last 3 month it is valid to wonder how much of this debt will get bailed out ( GM....) or will end up without much disclosure on the Fed´s balance sheet......I wonder how many companies are now on the brink of bankruptcy just because they decided to make big debt financed stock buybacks or megalomaniac takeovers & buyouts......

Diese Zahl bereits am Anfang einer schweren und langwierigen Rezession bedeutet nichts Gutes..... Nach den Ereignissen der letzten 3 Monate darf man wohl berechtigt fragen wieviel von diesem Junk entweder ein Bailout ( GM.... ) bekommen wird oder gar ohne großartige Transparenz in der immer weiter explosionsartig wachsenden Fed Bilanz verschwinden wird..... Tragischerweise befinden sich etliche dieser Unternehmen nur dank massiver schuldenfinanzierter Aktienrückkaufprogramme und größenwahnsinniger schuldenfinanzierter Übernahmen ( denke vor allem an Private Equity aber leider auch an den Fall Siemens VDO, Conti, Schaeffler ) in dieser wohl letzlich "tödlichen" Situation.......


WSJ Junk-Bond Market Has Closed the Door
Yields Upward of 20% Make It Too Pricey for Borrowers; Zero Deals Made It in November

About 50% of U.S. companies have below-investment-grade credit ratings, making the $750 billion junk-bond market a vital source of financing for car makers, airlines, retailers, utilities, restaurant chains and media companies

>The next chart is making things even scarier........ Within the "junk" label the remaining "quality" has deterioting fast and furious especially over the past few years..........

> Der nächste Chart macht alles nur noch erschreckender...... Innerhalb des "Junkuniversums" hat sich zudem die Qulität besonders im Laufe der letzten jahre massiv verschlechtert......

Debt Pile Looming Over European Firms

I´ll bet that some will damm their debt financed aquisitions & stock buybacks ( for some "amusing" examples see "I Want My Buyback Back" ) ........ I assume that during the coming at least 2 years it won´t be the earnings that will dominate the stockprice .... It will be all about the balance sheet....... The management will be forced from a shareholder value oriented mood to "serve" their new masters aka the bondholders.......



Kann mir gut vostellen das einige inzwischen Ihre schuldenfinanzierten Übernahmewahn & die Aktienrückkäufe bereuen ( einige "amüsante" Beispiele gibt es hier zu bewundern "I Want My Buyback Back" ) ...... Bin mir ziemlich sicher das zumindest auf Sicht von 2 Jahren weniger die Gewinnsituation als die Bilanzqualität das beherrschende Thema der Aktienmärkte sein werden..... Das Management wird zukünftig nicht mehr die Aktionäre sondern die Bondholder in den Mittelpunkt Ihrer "Bemühungen" stellen......

> The trouble is getting even greater when you combine the graph with the spread charts via Mish



> Wie prekär die momentane Lage ist zeigt mehr als eindrucksvoll wenn man die o.g. Grafik mit den nachvolgenden Charts kombiniert Unternehmensanleihen auf Tauchstation via Zeitenwende/Mish



WSJ European companies, already in the middle of an economic downturn, face another uphill struggle as they seek to refinance $242.6 billion of maturing debt over the coming year, according to credit-ratings firm Standard & Poor's.



"Funding pressures in Europe have escalated sharply since September as stress in the global financial system accelerated," the report said.

According to the report, European companies will be forced to pay back or refinance $586.3 billion through 2011, with more than 40% of that debt coming due over the next year.

French nonfinancial corporate issuers account for the largest portion of debt to be refinanced, with 26%, followed closely by the U.K., Germany, Netherlands and Italy, which have a combined share of 79%.

No company rated below single-A has managed to access the bond market in recent months, offering little hope for companies further down the ratings scale

The report examined all debts rated by S&P including bank loans, notes and bonds.

>The banks will have to pray that the companies manage the refinancing of the debt... Otherwise they are forced to tapp corporate bank lines .....

> Die Banken dürften bereits jetzt anfangen zu beten das es möglich sein wird diese fälligen Anleihen zu refinanzieren...... Ansonsten bleibt den Firmen nichts anderes übrig als die bestehenden Kreditlinien der Banken anzuzapfen...... Sicher nicht der glücklichste Umstand wenn nahezu alle Banken dringend auf Ihre Kapitalstärke achten müssen......

Credit terms increasingly tied to risk FT Alphaville - US and European companies renewing short-term credit facilities are being forced to accept terms that link interest payments to their creditworthiness. In recent months, AT&T, Wal-Mart, Caterpillar, Halliburton, Nokia and Novartis have all renewed their short-term financing arrangements, including revolving credit facilities, and found that “relationship pricing” is no longer available. Instead,

companies are finding that banks - which had offered cheap loans to top corporate clients - now price these facilities based on measures of credit risk. In most cases, credit default swaps are being used.

The first deal for this new type of pricing for revolving loans, totalling an estimated $6,000bn worldwide, was done in April

Since then, such terms have become widely used. Banks hope this will discourage companies from tapping these credit lines unless they absolutely need to. Already, at least 20 such deals for 364-day revolving credit facilities – a type of overdraft for companies to ensure access to funds in case markets shut down – have been completed and at least as many are in the pipeline.

Update via Bloomberg Borse Dubai May Refinance $4.2 Billion of Loans at Higher Costs

Borse Dubai Ltd., the Gulf emirate's state-owned operator of exchanges, is in talks to refinance $4.2 billion of loans at interest rates tied to the price of credit- default swaps, raising the cost of the debt, said three bankers with knowledge of the transaction.

The new debt may pay interest of as much as 6 percentage points over the London interbank offered rate on loans for three years, said the bankers, who declined to be named because the negotiations are private. That compares with a margin of 1.1 percentage points on the existing loans, which were used to buy Sweden's OMX AB last year

Not Only Homeowners Are Having Refinancing Problems.......

It is really no wonder that investors are demanding a much higher risk premium for bank debt.... It will be interesting to see how the central bank balance sheets will look like in 2009/2010....

Wenig verwunderlich das die Investoren zukünftig eine ansprechende Risikoverzinsung verlangen..... Bin gespannt wie die Bilanzen der Zentralbanken im Jahre 2009/2010 aussehen werden.....

New Credit Hurdle Looms for Banks WSJ
U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.

The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months.

The problem highlights how the pain of the credit crunch, now entering its second year, won't end soon for banks or the broader economy. The Federal Deposit Insurance Corp. said on Tuesday that its list of "problem" banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March. FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

The rates they'll have to pay if they want to issue new debt will be much higher than they were back in 2006. In July 2007, the interest rates on banks' floating-rate notes were only about 0.02 percentage point above the London interbank offered rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another. Today, that "spread" is at least two full percentage points for some banks.

via Bloomberg U.S. Says Banks on `Problem List' Rose 30% in Quarter

The U.S. Federal Deposit Insurance Corp. said its ``problem list'' of banks increased [to] 117 ``problem'' banks as of June 30, up from 90 in the first quarter and the highest since mid 2003 ... FDIC-insured lenders reported net income of $4.96 billion, down from $36.8 billion in the ame quarter a year ago.

> It seems to me that even the spread of 200 basispoints for lots of banks is not quite "rich"...... Especially when you add the lousy quality of their balance sheets..... Just take a look the another main sector besides residential is showing some kind of "stress"...... Hat Tip EconompicData

> Wenn man sich diese Meldung ansieht können einige Banken noch froh sein das die Spreads nur 200 Basispunkte betragen.... Ganz zu schweigen von der ansonsten oft sehr dürftigen Bilanzqualität...... Man muß sich nur einen zweiten Eckpfeiler neben dem privaten Immobiliensektor ansehen um zu erahnen das die Luft "dünner" wird..... Dank an EconompicData

As many banks compete for funds to pay off their borrowings, or sell assets to raise cash, their actions could exacerbate strains in financial markets. Banks that turn to shorter-term loans will have to renew their borrowings more frequently, increasing the risk that they won't be able to get money when they need it.

via Bloomberg Merrill, Wachovia Hit With Record Refinancing Bill

The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data.

Standard & Poor's said last week that it had a ``negative'' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years.

The difficulties with the floating-rate loans can be traced to the onset of the credit crunch last year. At the time, bank-affiliated funds known as structured investment vehicles, or SIVs, were among the first to suffer. Those funds had been buyers of the banks' floating-rate notes. But when SIVs were unable to find investors for their own short-term debt, the SIV market largely collapsed, taking a big chunk out of demand for new bank floating-rate notes.

The crunch comes as problems in the markets on which banks rely to borrow money are showing no sign of abating. In one gauge of jitters about banks' financial health, the three-month dollar Libor remains well above expected central-bank target rates for the same period.

Even at the higher interest rates, banks are having a hard time getting cash. The securitization markets that had allowed banks to repackage loans and sell them to investors remain all but shut. Banks today rarely make loans to one another for periods of more than a week, and even some so-called "repo" loans -- in which the borrower puts up securities as collateral -- are becoming more expensive.

At the same time, the pressures on limited resources of banks and investment banks are growing. Companies have been actively tapping bank credit lines set up before the credit crisis began, forcing banks to increase their lending at a time when they're trying to reduce risk. A number of big financial firms, including Citigroup Inc., Merrill Lynch, UBS AG, Morgan Stanley, J.P. Morgan, and Wachovia, have agreed to buy back some $42 billion of so-called auction-rate securities amid allegations that they misinformed retail investors about the securities' risks.

Central Banks' Role
All the strains have made financial institutions increasingly dependent on central banks in the U.S., the U.K. and Europe for loans to make ends meet. Many banks have been packaging mortgages into securities to use as collateral for financing from the European Central Bank and the U.S. Federal Reserve. Questions are cropping up about how long central bankers should prop up financial markets, and whether banks in Europe are taking undue advantage of the central bank's lending facilities.

On this topic..... Buy Freddie Paper With Fed Leverage via Dealbraker Hat Tip FT Alphaville

We don't know who bought the Freddie notes today. But buyers of Freddie notes who have access to borrowing from the Federal Reserve would have found the ecision to bid relatively easy. That's because the ability to exchange the Freddie debt for Fed cash means banks can buy Freddie debt with a huge amount of leverage, dramatically increasing the return on their capital.

Here's how it works. A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed's Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around).

At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return, or 8.8% over six months, for paper that is thisclose to being explicitly backed by the Treasury Department. Not a bad deal at all.

via Real Time Economics

But there is growing concern banks have become over-reliant on ECB funding, or may be abusing the situation. The ECB says it is monitoring developments and will, if necessary, adjust funding rules. Some financial institutions may have started to treat the ECB’s financing window as a substitute for a well-functioning structured finance market that has been largely shut since last August.

The share of asset-backed securities — or notes backed by repayments on debt such as mortgages or credit card loans — in the total collateral held with the national central banks in the 15-nation euro zone has risen to around 20%, from around 4% in 2004. At the same time, the share of government bonds has fallen sharply.

> Here the Fed´s balance sheet..... Hardly AAA.....

> Hier das grausige Bild der Fed Bilanzkomposition..........Sieht mir nicht mehr nach AAA aus.....

Mish has also something to say and is offering this must see chart Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Scary.....

Mish trifft mit seiner Aussage den Nagel mal wieder auf den Kopf und liefert gleichzeitig einen Blick auf die detaillierte Ansicht der Fed Bilanz. Nicht verpassen! Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Fuchteinflösend.....

"A the current pace, the Fed runs out of treasuries about a year from now. Things are about to get very interesting."

via Telepgraph Bank borrowing from ECB is out of control

One ECB source told The Daily Telegraph that over-reliance on the ECB funds has become an increasingly bitter issue at the bank because the policy amounts to a covert bail-out of lenders in southern Europe.

"Nobody dares pinpoint the country involved because as soon as we do it will cause a market reaction and lead to a meltdown for the banks," said the source.

This "soft bail-out" is largely underwritten by German and North European taxpayers, though it is occurring in a surreptitious way. It has become a neuralgic issue for the increasingly tense politics of EMU.

The latest data from the Bank of Spain shows that the country's banks have increased their ECB borrowing to a record €49.6bn (£39bn). A number have been issuing mortgage securities for the sole purpose of drawing funds from Frankfurt.

Got gold......?

Showing Stress.....& The Impotent Fed.

I think it is safe to say that the spreads in the auto & credit card segment will spike much higher in the coming quarters.... And this trend will spread around the globe.....

Ich bin mir ziemlich sicher das die Risikoaufschläge besonders im PKW und Kreditkartenbereich in den nächsten Quartalen noch erheblich steigen werden. Und das betrifft dann nicht nur die USA betreffen...... Passend hierzu aus der FAZ Unternehmensanleihen : Dunkle Wolken über spekulativen Werten

Worry About Stretched Firms,Consumers Hits Debt Markets WSJ
A range of corporate bonds and securities backed by consumer loans and mortgages have sagged in recent weeks to levels last seen in March, when worries about a financial crisis hit a high.

This time there is much less panic, but concern is building about the health of businesses and consumers.

The weakness is most visible in the debt of auto makers, retailers and companies in sectors reliant on consumer spending. Bonds issued by some financial institutions are also strained.

While a large-scale credit meltdown looks unlikely now, rising bond yields will make it harder and more expensive for corporations and individuals to finance their businesses, homes, education and day-to-day expenses.

Investors are demanding higher interest rates on most corporate and asset-backed debt. The average junk bond now yields around 8.1 percentage points more than Treasury securities, or 11.5%. That compares with a yield of 11.1% and spread of 8.6 percentage points on March 17, according to data from Merrill Lynch & Co.

Average spreads on bonds backed by auto loans and credit cards are three percentage points and 2.1 percentage points, respectively, close to their highs this spring. .....

Moody's Investors Service recently surveyed 31 companies that distribute gas to households. Of the group, 18 companies said an increasing number of customers were falling behind on their gas bills this year compared to last year

> No surprise to see that banks are once more procyclical in their lending habbits ( Same is happening in Europe WSJ: Euro Banks Tighten Lending Standards via Calculated Risk) ....... Too bad that there is so far no bill/law that allow Bernanke & Paulson to order banks to lend...... But with all the attempts we have seen you can´t even rule this out for the future ........ :-)

> Schon bemerkenswert wie es Banken immer wieder schaffen Ihre Kreditvergabekriterien immer prozyklisch dem Markt anzupassen anstelle in Zeiten des offensichtlichen Exzesses gegenzusteuern ( gleiches passiert auch in Europa Banken geizen mit Krediten FTD ).... Zu dumm das es bisher noch keine gesetzliche Handhabe für Bernanke und Paulson gibt die Banken zu verpflichten mehr zu vereleihen.... Nach allem was bisher aus den USA gekommen ist kann man aber selbst das zukünftig nicht mehr ganz auschließen..... :-)

Chart Of The Day " CDS On 10yr US Treasuries

There is no free lunch..... Looks like some are questioning the AAA rating of the US..... :-) And with future liabilities from roughly $ 40 to 50 trillion ( growing $ 3-4 trillion p.a. - see If we are Rome, Wall Street's our Coliseum ) only the rating agencies and their bullet proof models are able to justify/create this rating ..... Got GOLD?

Ist das nicht herrlich.... Die Kreditabsicherung gegen einen möglichen Zahlungsausfall von US Staatspapieren ist im Zuge der ganzen täglichen Balioutaktionen geradezu explodiert. Sieht so aus als wenn einige Marktteilnehmer das AAA Rating der USA ernsthaft in Frage stellen... :-) Bei knapp 40 - 50 Billionen $ an zukünftigen Zahlungsverpflichtungen die zudem jährlich momentan ohne all die Bailouts mit ca. 3-4 Billion $ anwachsen ( siehe If we are Rome, Wall Street's our Coliseum ) ist die Sorge eigentlich kaum verständlich. Immerhin haben die Ratingagentuen in einem Ihrer unfehlbaren Modelle die AAA Einschätzung trotz dieser Daten etliche Male bestätigt . Hoffe man hat meinen Sarkasmus heraushören können..... Got GOLD?

Actual numbers: cost of protecting US government debt up 2 basis points to 22bp at close Tuesday, exceeding March all-time-high of 20bp. “In normal times, the spread [full stop] is less than 2bp.”

Hat tip HT Alea: & FT Alphaville

UPDATE: Here is more on this topic from Michael Panzner

The Beginning of the End for America's AAA Rating?

There is no doubt that talk of a bailout of Fannie Mae and Freddie Mac has spurred what could be a short-lived spike. Still, it makes you wonder if the market is starting to price in what many say is inevitable after years of profligacy and failed policies: a credit downgrade for the United States.

Credit Quality in a Freefall

I assume that lthe majority of these distressed companies have bought back shares during the past few years....

Ich gehe jede Wette ein das die Mehrzahl der jetzt betroffenen Firmen in den letzten Jahren fleißig Aktien zurückgekauft haben.....

Credit Quality in a Freefall / CFO.com
The distressed-debt ratio quadruples in a month's time though some signs point to a light at the end of the tunnel.

Credit quality deteriorated steeply from mid-October to mid-November despite the recent actions by the Federal Reserve to stimulate credit markets.

As of Nov. 15, $36.2 billion worth of debt was in distressed issues, more than four times the $8.6 billion reported a month earlier, according to Standard & Poor's. Distressed debt as a percentage of total debt recorded its largest monthly increase in five years, more than doubling to 4.9 percent from 2.3 percent. The ratio was as low as 2.1 percent 12 months ago.

Distressed credits are defined as speculative-grade-rated issues that have option-adjusted spreads of more than 1,000 basis points relative to Treasuries.

Other metrics also suggest that the credit crunch continues to impact the overall credit markets. For example, the non-distressed speculative-grade bond spread widened to 502 basis points in mid-November from 392 basis points a month earlier, according to S&P.

In addition, the total number of rated companies with issues trading at distressed levels ballooned to 224, almost double the 120 in October, according to the report.

S&P noted that of the 224 companies on this month's distressed list, half had either negative outlooks or ratings on CreditWatch with negative implications. The outlooks on 39 percent of the companies were stable, 7 percent were positive, and 4 percent were developing.

Of the 52 companies listed at the 1,000 bps level, 27 were rated "B-" or lower, and 39 were on CreditWatch with negative implications or had negative outlooks.

Not surprisingly, financial issues are suffering the most. Of the $36.2 billion of distressed issues, finance companies had the largest exposure, constituting 45 percent of the total debt affected, according to S&P. Next came media and entertainment at just over 20 percent.

Brokerage and finance companies displayed the highest distress rates as a share of total speculative-grade-rated issues, at 20 percent and 13.6 percent, respectively.

Not all of the news was bad. S&P pointed out that the U.S. speculative-grade default rate — typically the last indicator of stress within a credit cycle — hit an all-time low of 0.98 percent at the end of October, down from a previous low of 1.13 percent in September.

"Though default risk is rising, this year's default count continues to be constrained in part because of limited refunding needs, as well as structural concessions that avert payment default," S&P said in its report.

Year to date, the U.S. has recorded 13 defaults. "The U.S. speculative-grade default rate remains suppressed and is likely to post a year-end 25-year low of close to 1 percent,” S&P predicted.

> This low defalut rates ratios will dramatically spike during the years to come....

> Diese paradisischen niedrigen Ausfallraten dürften für lange lange Zeit Geschichte sein.....

Credit Cards & Junk Default Rates

Pimco is out with a new report A Hard Day’s Knight: The Global Financial Market Confronts Uncertainty, Not Just Risk (and the Difference is Important) I have taken the two charts out of context to point to two post i have done in the past few days.

Pimco hat einen neuen Report herausgebracht. Ich habe hier mal 2 Charts aus dem Post zum Anlaß genommen um meine Posts aus den letzten Tagen zu ergänzen. A Hard Day’s Knight: The Global Financial Market Confronts Uncertainty, Not Just Risk (and the Difference is Important)

Topic One "Credit Cards"

I think it is safe to say that the credit card spread will "adjust" sooner than later.......

Ich denke man braucht kein Hellseher zu sein um vorherzusagen das der Spread für die Kreditkarten sich demnächst wohl "anpassen" wird....

Topic Two "Junk-Grade Defaults"

Keep in mind that over 50% of US bonds issuance was junk in 2007. Compare this table with the precitction for defaults from Moody´s .....

Behaltet bei Betrachtung dieser Tabelle im Hinterkopf das im Jahr 2007 über 50% aller US Anleihen die begeben worden sind in die Kategorie "Junk" fallen. Vegleicht die Tabelle mit der Prognose der Ausfälle von Moody´s .....

Junk-Grade Defaults ‘More Likely’ / FT

I´ll bet that we will see much higher default rates than the agencies are forecasting. When you look at the spreads (chart Bespoke) there is much more room to the upside. Especially when you keep this in mind

Ich bin mir ziemlich sicher das wir in der Zukunft noch deutlich höhere Ausfallraten sehen werden als jetzt vorhergesagt werden. Hier ein Spreadchart via Bespoke der sehr anschaulich zeigt das hier noch "Luft ist". Das gilt insbesondere wenn einige Details näher beleuchtet werden.

More securities than ever have the lowest rankings, with CCC ratings assigned to 26.5 percent of the new debt, according to New York-based Fitch Ratings. That compares with 15 percent in 2006 for debt that itch says has a ``high default risk.''

Bonds that allow companies to pay interest in extra securities instead of cash, including toggle notes, accounted for almost 9 percent of high-yield debt sold this year, compared with less than 1 percent three years ago

Junk Grade Defaults More Likely / FT
Moody’s Investors Service said last month that company default rates in the junk-grade sector would rise by nearly 300 per cent as the credit squeeze hit the wider economy.

The agency predicted that the global speculative-grade default rate would rise from 1.4 per cent now, meaning only 1.4 per cent of the companies rated have defaulted in the past year – to 4.1 per cent in a year’s time and 5.1 per cent in two years’ time.

> Compare the prognosis (dotted chart-line) from the beginning of 2007 with the latest estimate. They had "calculated" roughly a 36% lower default rate. Here is another number that is hinting that the models from the rating agencies one more are outdated.....

> Vergleicht die Prognose im Chart von Anfang 2007 mit den aktuellen "Erwartungen". Hier noch eine weitere Hausnummer die darauf deuten läßt das die Modelle der Ratingagenturen in guten wie in schlechten Zeiten Ihren Zweck evtl. nicht erfüllen......

Distressed Bonds Increase Most Since 2003 / Bloomberg

The corporate bond market's favorite securities last year, so-called distressed debt, yield at least 10 percentage points more than Treasuries. Since June, the amount of distressed bonds has risen more than fivefold to $24.8 billion, according to an index Merrill Lynch & Co. began compiling in 1997.