Post by jeffolie on Jul 29, 2007 15:01:25 GMT -6
"The risk of owning corporate bonds soared to the highest on record in the US and Europe on rising concern that banks and hedge funds face widening losses from subprime mortgages and leveraged buyouts. "
Bond risk nears record as investors flee corporate debtPublished: Saturday, 28 July, 2007, 02:42 AM Doha Time
NEW YORK: The risk of owning corporate bonds soared to the highest on record in the US and Europe on rising concern that banks and hedge funds face widening losses from subprime mortgages and leveraged buyouts.
The cost to protect debt of companies from Goldman Sachs Group to Deutsche Bank and Australia’s Westpac Banking Corp jumped as investors shunned all but the safest of debt, according to credit-default swap traders.
A risk benchmark in Japan had its biggest one-day increase on record. Risk premiums rose beyond records reached in 2005 when General Motors Corp and Ford Motor Co lost their investment-grade credit ratings.
More than 40 companies worldwide reorganised or abandoned borrowing plans in the past month as investors balked at extending credit. The retreat has forced banks to take on at least $32bn of debt and threatens to bring an end to a record run of LBOs, which topped $690bn this year.
“The big risk in the coming weeks and months is that you get forced selling of credit with institutions, both from the hedge fund side and the bank side,” said Bob Janjuah, chief credit strategist at Royal Bank of Scotland Group Plc in London. “The global economy is a debt-fueled, confidence-based scheme. All assets are and will be impacted.”
Credit-default swaps based on $10mn of debt in the CDX North America Investment Grade Index soared as much as $13,500 yesterday to $81,000, according to Deutsche Bank prices, the highest since the CDX indexes were created in 2004.
The iTraxx Europe Series 7 Index of 125 companies with investment-grade credit ratings jumped 16,000 euros ($21,800) to as much as 60,000 euros, the biggest increase since the index started three years ago. Europe’s three-year-old iTraxx Crossover Series 7 Index of 50 companies with mostly high-risk credit ratings increased 46,000 euros to 455,000 euros.
In Asia, the iTraxx Japan Series 7 Index of 50 investment-grade companies, rose 26%, or 7.5 basis points, to 37 basis points, according to data compiled by Bloomberg, the biggest one-day move in the index.
The index includes All Nippon Airways Co and Japan Tobacco Inc.
The worldwide selloff accelerated this week and concerns spread beyond financial companies and homebuilders. Buyers of bonds began demanding higher risk premiums for all corporate debt. Investor confidence was sapped as borrower defaults on subprime mortgages grew, sparking worries that losses will deepen on securities that are backed by those loans.
Absolute Capital Group, an Australian hedge fund, suspended withdrawals from two funds after forecasting losses on US mortgages to people with poor credit.
The cost of a $10mn credit-default swap on Detroit-based General Motors, the biggest US automaker, moved $100,000 in about 10 minutes to $838,000, the highest in more than a year, according to London-based CMA Datavision.
Dearborn, Michigan-based Ford has soared $213,000 this week to $895,000, its biggest move on record.
CMA Datavision, which provides composite credit-default swap prices, has been receiving quotes yesterday on half the number of companies it normally gets, a sign that investors and traders are fleeing.
Countrywide Financial Corp, the biggest US mortgage lender, is trading at a record $173,000, according to broker Phoenix Partners Group, about four times the price at the beginning of June. Countrywide, based in Calabasas California, this cut its forecast for 2007 profit and said more customers are falling behind on home-equity loan payments.
Contracts on New York-based Goldman Sachs, the world’s biggest securities firm, rose to a record for a second day, climbing as much as $26,000 to $105,000, according to Phoenix prices. Bear Stearns Cos. jumped $8,000 to $110,000.
Credit swaps on AAA rated bond insurer MBIA Insurance, a unit of Armonk, New York-based MBIA Inc are trading at $108,000, quadruple the amount on June 1, according to CMA Datavision.
Deutsche Bank’s risk premium is now five times the amount sought on June 1. The bank’s senior debt contract soared 15,000 euros to a record 50,000 euros, according to Royal Bank of Scotland prices, from as little as 9,000 euros at the beginning of June. – Bloomberg
www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=163546&version=1&template_id=48&parent_id=28
Bond risk nears record as investors flee corporate debtPublished: Saturday, 28 July, 2007, 02:42 AM Doha Time
NEW YORK: The risk of owning corporate bonds soared to the highest on record in the US and Europe on rising concern that banks and hedge funds face widening losses from subprime mortgages and leveraged buyouts.
The cost to protect debt of companies from Goldman Sachs Group to Deutsche Bank and Australia’s Westpac Banking Corp jumped as investors shunned all but the safest of debt, according to credit-default swap traders.
A risk benchmark in Japan had its biggest one-day increase on record. Risk premiums rose beyond records reached in 2005 when General Motors Corp and Ford Motor Co lost their investment-grade credit ratings.
More than 40 companies worldwide reorganised or abandoned borrowing plans in the past month as investors balked at extending credit. The retreat has forced banks to take on at least $32bn of debt and threatens to bring an end to a record run of LBOs, which topped $690bn this year.
“The big risk in the coming weeks and months is that you get forced selling of credit with institutions, both from the hedge fund side and the bank side,” said Bob Janjuah, chief credit strategist at Royal Bank of Scotland Group Plc in London. “The global economy is a debt-fueled, confidence-based scheme. All assets are and will be impacted.”
Credit-default swaps based on $10mn of debt in the CDX North America Investment Grade Index soared as much as $13,500 yesterday to $81,000, according to Deutsche Bank prices, the highest since the CDX indexes were created in 2004.
The iTraxx Europe Series 7 Index of 125 companies with investment-grade credit ratings jumped 16,000 euros ($21,800) to as much as 60,000 euros, the biggest increase since the index started three years ago. Europe’s three-year-old iTraxx Crossover Series 7 Index of 50 companies with mostly high-risk credit ratings increased 46,000 euros to 455,000 euros.
In Asia, the iTraxx Japan Series 7 Index of 50 investment-grade companies, rose 26%, or 7.5 basis points, to 37 basis points, according to data compiled by Bloomberg, the biggest one-day move in the index.
The index includes All Nippon Airways Co and Japan Tobacco Inc.
The worldwide selloff accelerated this week and concerns spread beyond financial companies and homebuilders. Buyers of bonds began demanding higher risk premiums for all corporate debt. Investor confidence was sapped as borrower defaults on subprime mortgages grew, sparking worries that losses will deepen on securities that are backed by those loans.
Absolute Capital Group, an Australian hedge fund, suspended withdrawals from two funds after forecasting losses on US mortgages to people with poor credit.
The cost of a $10mn credit-default swap on Detroit-based General Motors, the biggest US automaker, moved $100,000 in about 10 minutes to $838,000, the highest in more than a year, according to London-based CMA Datavision.
Dearborn, Michigan-based Ford has soared $213,000 this week to $895,000, its biggest move on record.
CMA Datavision, which provides composite credit-default swap prices, has been receiving quotes yesterday on half the number of companies it normally gets, a sign that investors and traders are fleeing.
Countrywide Financial Corp, the biggest US mortgage lender, is trading at a record $173,000, according to broker Phoenix Partners Group, about four times the price at the beginning of June. Countrywide, based in Calabasas California, this cut its forecast for 2007 profit and said more customers are falling behind on home-equity loan payments.
Contracts on New York-based Goldman Sachs, the world’s biggest securities firm, rose to a record for a second day, climbing as much as $26,000 to $105,000, according to Phoenix prices. Bear Stearns Cos. jumped $8,000 to $110,000.
Credit swaps on AAA rated bond insurer MBIA Insurance, a unit of Armonk, New York-based MBIA Inc are trading at $108,000, quadruple the amount on June 1, according to CMA Datavision.
Deutsche Bank’s risk premium is now five times the amount sought on June 1. The bank’s senior debt contract soared 15,000 euros to a record 50,000 euros, according to Royal Bank of Scotland prices, from as little as 9,000 euros at the beginning of June. – Bloomberg
www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=163546&version=1&template_id=48&parent_id=28