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High Yield Corporate Debt Spreads At Historic Wides
Junk spreads eclipse levels seen back in 2002.
October 29, 2008
Yield premiums for high yield corporate debt hit yet a new record this week, suggesting investors are still nervous about the US economy's well-being and how a slowdown in consumer spending will impact corporate profits.
Also, the wider spread levels show that concerns about liquidity in the credit markets still linger despite efforts by US Treasury and the Federal Reserve to unlock the credit logjam.
"There are concerns about the economy and there is a lack of visible thawing in the credit markets," says Diane Vazza, managing director at Standard & Poor's.
The credit rating agency noted in a report on Wednesday that speculative grade spreads hit 1,375 basis points. That level is dramatically wider than 2002's historic 1,100 basis points.
At the same time, high grade corporate debt spreads are within basis points of a five-year wide. According to S&P, investment grade spreads are at 473 basis points, two basis points shy of a five-year high.
According to S&P, yield premiums for high grade and high yield debt are nearly three times their five-year moving averages and nearly double their one-year moving averages.
By industry, yield premiums for industrials and utilities hit new five-year records and for financial institutions they remained at a five-year high, the rating agency said in its report.
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