Tuesday, 10 March 2009

European junk debt is at new peak levels

The high yield corporate bond market is struggling. One perspective on this sector and one which is tradable via an ETF is JNK, which is based on a Lehman High Yield Bond index.

According to a report in the Guardian newspaper today European junk debt is at new peak levels.

The Markit iTraxx crossover index, which rates the market perception of the possibility of default among 50 European junk-rated borrowers, rose to a record 1169 basis points on Monday, ahead of the 1160 points reached last week.

Analysts fear banks will see more bad loans contaminate their books as well as further losses from their investments in complex debt vehicles and derivatives contracts. "Forward-looking indicators, such as spreads on credit default swaps [a product sold to protect against possible defaults], suggest that more pain is to come," said Gavan Nolan, an analyst at Markit, a financial data provider.

The default rate among speculative-grade-rated European firms is forecast to soar to 22.5% by the end of this year, from 2.7% in February, Moodys said last week.

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