Interest Rate Roundup

Thursday, July 26, 2007

It's the end of the world as we know it ...

That's the name of a great R.E.M. song (And yes, for you purists, I left off the "(And I feel fine)" part). It also pretty much summarizes trading activity in the bond and credit derivatives markets. Just get a load of these quotes from a Bloomberg story ...

* "An index allowing investors to bet on the U.S. leveraged loan market fell to its lowest since it began trading two months ago."

* "Benchmarks gauging the risk of owning investment-grade corporate bonds in the U.S. and Europe had their worst day on record."

* "An ABX index tracking default risk on the safest subprime bonds fell to its lowest ever and premiums of mortgage securities guaranteed by government-chartered companies Fannie Mae and Freddie Mac rose to the highest in four years."

* "Credit-default swaps on Goldman Sachs Group Inc. and Bear Stearns Cos. rose to records on concerns investment banks will be stuck with high-yield, high- risk debt that they are unable to sell."

* "The extra yield, or spread, investors demand to own investment-grade corporate bonds instead of U.S. Treasuries jumped the most for a single day since July 2002, when WorldCom Inc. filed for bankruptcy. The spread for junk bonds had the biggest one-day widening since June of that year."

A plague of locusts swarmed over Wall Street, while the Hudson River ran red with blood ... Okay, I made those last two up. But clearly, all is not well in corporate finance land. Will things get as bad as Long-Term Capital Management in 1998? Or is this just another hiccup akin to what happened earlier this year? Place your bets.

And on a side note, aren't you glad to see the subprime mortgage problems are "well-contained?"


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