Tag Archives:

default risk

Equity multiple expansion to the rescue. A benefit to high yield ?

The high yield market rightly pays a good deal of attention to leverage trends (the relationship between debt and earnings). The larger the quantum of debt a business carries relative to its earnings, the greater the risk. Other metrics are arguably as important, though it is the leverage metric that consistently garners the lion’s share of attention. With spreads near the post Lehman tights, i…

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Interest rate duration or defaults – which is the lesser of two evils?

So far this year returns for the high yield market seem solid if unspectacular; 2.9% for the global index, 4.5% for Europe and 3.4% for the US. However, these overall numbers mask some interesting gyrations within the markets. It’s been a mixed year for government bonds but a solid year for credit spreads. Indeed, recent moves in the sovereign bond markets continue to focus investors’ minds on …

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HY default rates showing the divergence in the Eurozone

2012 was not a good year for peripheral European defaults in the high yield market. Spain’s default rate doubled from 7% to 14%, while Italy’s went from 5.7% to 9.5%. Clearly, that the Spanish and Italian economies are under stress is not news, but what I thought was interesting though was that German defaults have continued to fall. It is important to point out that this is not just the public…

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The “safety race”: the systemic implications of the bank asset grab

Anyone monitoring the risks in the global financial system knows that those of us who lend to banks are increasingly asking for some kind of security in order to do so. Issuance volumes for covered bonds have increased and more countries have recently passed covered bond laws or are in the process of debating legislation. Andrew Haldane, Executive Director for Financial Stability at the Bank of…

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The big credit headline this week in the sterling bond world is that the UK gilt market has been put under review by one of the top three rating agencies Moody’s, for a downgrade from AAA to AA+. As bond investors in gilts and not politicians who love making sound bites, what does it really mean for the credit worthiness of gilts?

According to Moody’s European issuer-weighted default rate data …

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France now yields more than EFSF. Hmm

France has started wobbling again recently.  France 10 year government bond yield spreads over Germany have blown out from just under 100 basis points at the beginning of December to 150 basis points today, although this is still a bit below the wides of 190bps in mid November.   Maybe people have woken up to the likelihood of France losing its AAA status, or the probability that France is goin…

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Is an ‘A’ rating the new ‘AAA’?!

We’ve written recently about the bond world going ‘topsy turvy’, in that a consequence of QE may be that the higher inflation economies could end up with having lower yielding sovereign bond yields than the lower inflation economies.

Another way that the bond markets are starting to look topsy turvy is in terms of sovereign credit rating versus a country’s perceived risk of default, whereby a n…

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Free lecture series at the London School of Economics

Being the intellectuals that you are, we thought you might find some of the upcoming events being held at the London School of Economics (LSE) of interest. On the 30th of June they have Andrew Ross Sorkin discussing the development of the financial crisis since the publication of his book Too Big to Fail, and what he thinks the future may hold.  We’ve mentioned his book numerous times on the bl…

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What happened the last time the UK defaulted?

Britain has run debt to income ratios way in excess of current levels at several points in its history.  Around the times of the Napoleonic War, and both the First and Second World Wars the debt to income level exceeded 200% – levels that today would be regarded as crippling and would lead the markets to expect imminent default. Click chart to the left. Yet there has never been a formal default…

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