It is raining canaries

Sinkholes are popping up in the credit market. Specific junk bonds are simply plummeting in value on little trading. For example, nothing all that obvious triggered a plunge in Syniverse Holdings, whose bonds fell to 39 cents on the dollar Monday, from 84.25 cents less than a month earlier. Debt of Intelsat, United States Steel, SandRidge Energy and Ultra Petroleum all lost about 30% last month. Yet looking broadly, there isn’t a financial crisis in developed markets. U.S. stocks are still eking out gains. Companies are still issuing bonds. So why the precipitous drops without warning? The explanation is that asset managers are being forced to exit their riskiest positions, either because of withdrawals or to placate increasingly nervous investors, and they’re finding no buyers on the other side. When these fund managers finally get an offer to shed their unwanted holdings, they’re just taking it, even if it means taking a huge loss.” [Link via Credit Bubble Bulletin – Link]

More than $1tn in US corporate debt has been downgraded this year as defaults climb to post-crisis highs, underlining investor fears that the credit cycle has entered its final innings. The figures, which will be lifted by downgrades on Wednesday evening that stripped four of the largest US banks of coveted A level ratings, have unnerved credit investors already skittish from a pop in volatility and sharp swings in bond prices. Analysts with Standard & Poor’s, Moody’s and Fitch expect default rates to increase over the next 12 months, an inopportune time for Federal Reserve policymakers, who are expected to begin to tighten monetary policy in the coming weeks. S&P has cut its ratings on US bonds worth $1.04tn in the first 11 months of the year, a 72% jump from the entirety of 2014. In contrast, upgrades have fallen to less than $500bn, more than a third below last year’s total. The …rating agency has more than 300 US companies on review for downgrade, twice the number of groups its analysts have identified for potential upgrade.  [Link  via Credit Bubble Bulletin – Link]

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