Tuesday, September 11, 2007 0 comments ++[ CLICK TO COMMENT ]++

Junk bond defaults likely to rise

Moody's is warning that junk bond default rates may go up:

Defaults among companies with speculative-grade credit are likely to more than double over the next year, Moody's Investors Service said Tuesday.
Many of the defaults and bankruptcies in the coming year may be triggered by companies simply running out of cash to sustain business, because most used strong markets in the past few years to relax financial covenants on their bank credit facilities, Gates said.

Well this is no surprise and I have been expecting it for a while now. Mortgage debt has been in the process of repricing over the last few months; now it looks like junk bonds (quite popular in LBOs over the last few years). I am predicting that the next thing will be emerging market bonds. Some EM bulls think that emerging markets are not risky anymore but the fact of the matter is that hardly any of them have ever repaid their debt in full. The current commodities boom is making some countries look good on paper but I suspect that they will default when the boom ends.


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