Credit Market Stress Intensifying: Corporate, High Yield Issuance Tanked in November

The US stock markets are harboring the fond notion that the sovereign-bank debt pile-up in Europe has no real implications across the pond, no doubt out of professional participants’ hope to retain solid gains thorugh year-end bonus setting. The debt markets are saying otherwise. Credit market risk aversion typically precedes a stock market correction, but bond markets can also send false positives.

What is noteworth is how pronounced the shift in sentiment was. From Bloomberg:

Issuance has slumped 31 percent since Nov. 15, compared with the same period a year earlier, after surging 34 percent in the first half of the month, according to data compiled by Bloomberg. Plunging returns on debt of borrowers from France’s Credit Agricole SA to Bentonville, Arkansas-based Wal-Mart Stores Inc. are dragging bonds to a 1.08 percent loss in November, Bank of America Merrill Lynch index data show.

And note that the jitteriness isn’t just for high yield paper, but across the board:

“There’s been a lot more volatility in the high-yield and investment-grade markets here in the U.S. because of what happened in Greece in the spring and Ireland now,” said Bonnie Baha, head of the global developed credit group at DoubleLine Capital LP, which manages $6.8 billion in Los Angeles….

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  1. Doctor Stock

    Is it that they don’t believe it has implications or that it was already anticipated? It’s interesting to note that Ireland, along with Spain, Portugal, etc., were highlighted as problem countries some time ago… so why the jitteriness now when it surfaces?

    There’s no 4-year Presidency term solution that I see…

  2. libhomo

    The “sovereign-bank debt pile-up” in Europe is just a scam designed to steal money for the rich and from everyone else. The banksters and government officials are doing the same things to Greece and Ireland that was done to Argentina and Indonesia in the past.

  3. john bougearel

    Stock Markets have it right, and so does the high yield mkt. Yields on 10 yr notes rose 60 bps in the past 2 months in response to asset inflation. This makes the risk free 10 yr note more attractive to other debt instruments, naturally, those other debt instruments saw their yields back up.

    And issuance in the 2 wk window since Nov 15 as cited by Bloomberg is far too small a sampling size to be anything but noise, especially when compared to conditions a year ago. How bout noting the issuance decline in the past few weeks relative to a few months ago when bond issuance would have been 50 bps cheaper. No wonder debt issuance declined.

    Further, there is no pressing need to issue debt in this muddle through economy. Besides, most companies have stellar balance sheets and strong cash flows, especially when compared to sovereigns. Can’t say the same about the cash flows and balance sheets of the PIIGS.

    Moreover, US corporate after tax profits are at a record high according to the St Louis Fed. And US corporates may even get another huge windfall in 2011, a tax rate cut from 35% to 26%. If that happens, Cha-ching goes the register.

    Finally, policymakers in Europe kicked the can of Irish and Greek insolvency into 2015 this weekend. Meanwhile, Spain and Portugal have no urgent funding requirements until April 2011. That is a net positive for risk markets such as stocks, commodities, and foreign currencies. Asset inflation under QE2 is also a net positive for stocks, commodities, and foreign currencies. Recent US economic data points have been strong and this positive feedback loop has strengthened positive expectations for US economic mfg and jobs data out later this week.

    1. Hugh

      Speaking of noise, where is there any increased demand in all that? Or are you equating bubble fueled inflation in commodity pricing with it?

  4. marc sobel

    Please forgive my ignorance but it would be useful if you did an explanation of this post. I don’t understand the implications and you are very good at providing remedial explanations.

    My guess is that it is saying that corporations are having to pay higher interest in order to sell bonds because people are afraid that the Euro/Irish et. al. ripoff may raise the risk that companies may default but it is being expressed as fewer bonds are being sold by companies. Do I have that right ?

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