Interest Rate Roundup

Friday, May 23, 2008

Global corporate bond defaults on the rise

Many risk spreads have narrowed since the Fed-organized bailout of Bear Stearns. But we're seeing some signs of renewed, minor turbulence in the corporate bond market. One reason? Defaults are rising. There have already been more global defaults this year than we had in all of 2007. More details in this excerpt from Bloomberg:

"Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 4.25 basis points to 84.5 as of 11:48 a.m. in London trading, according to JPMorgan Chase & Co. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 15 basis points to 461, JPMorgan prices show.

"Defaults by Tropicana LLC, the Atlantic City casino operator, and U.S. housewares retailer Linens 'n Things Inc. helped push this year's total to 28, compared with 22 borrowers that missed payments in all of 2007, Standard & Poor's said in a report yesterday. The global default rate will rise to 4.7 percent in the next 12 months from a 25-year low of 0.97 percent at the end of 2007, according to S&P. The average since 1981 is about 4.35 percent."


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