Did you know: Of the 6 Trillion in corporate debt, nearly 50% stands just one notch above junk status!
I think its 6 trillion, but anyway, its a lot of money. Over the past few years, American companies have aggressively raised low covenant debt so that they can retire equity... The reason, of course, is that its a great way of driving up stock price without any CAPEX, the debt will someday be someone else's problem.
Traders have been moaning about liquidity issue, whereas a few years ago selling $ 100 million of a high brand name bond was easy, now it's difficult. The same in the other markets too!
The story here is that with the end of QE, and the overdue decision by the FEDs to finally seriously take the punch bowl away from the party, interest rates are rising, which impacts stock prices, and debt price. Not only is it becoming more costly to issue debt, but the equity it is replacing is also dropping in price -- funny enough when stock prices drop there is very little appetite in corp boards to execute buybacks.
The issue here is even more serious, because whereas investment grade bonds are difficult to sell in the secondary market, HY or junk bonds are almost impossible to sell, at a reasonable price.
The crisis occurs when investors are looking for liquidity, and when prices begin to drop, investors sell what they can, rather than what they want to sell.
I don't know if there's a link with cryptocurrencies -- that are in free fall right now
BTW the last time I wrote about Bitcoin they were around $5,000 each -- today its $4,441; I wrote about Bitcoin Monday
Traders have been moaning about liquidity issue, whereas a few years ago selling $ 100 million of a high brand name bond was easy, now it's difficult. The same in the other markets too!
The story here is that with the end of QE, and the overdue decision by the FEDs to finally seriously take the punch bowl away from the party, interest rates are rising, which impacts stock prices, and debt price. Not only is it becoming more costly to issue debt, but the equity it is replacing is also dropping in price -- funny enough when stock prices drop there is very little appetite in corp boards to execute buybacks.
The issue here is even more serious, because whereas investment grade bonds are difficult to sell in the secondary market, HY or junk bonds are almost impossible to sell, at a reasonable price.
The crisis occurs when investors are looking for liquidity, and when prices begin to drop, investors sell what they can, rather than what they want to sell.
I don't know if there's a link with cryptocurrencies -- that are in free fall right now
BTW the last time I wrote about Bitcoin they were around $5,000 each -- today its $4,441; I wrote about Bitcoin Monday
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