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Bond Market Breaking Bad - Credit Downgrades Highest Since 2009

Tyler Durden's picture




 

Despite The Fed's best efforts to crush the business cycle, the crucial credit-cycle has reared its ugly head as releveraging firms (gotta fund those buybacks) and deflationary pressures (liabilities fixed, assets tumble) have led to a surging market cost of capital.

As WSJ reports, softening U.S. corporate fundamentals have been largely overlooked but the markets for riskier debt have become snarled with rising downgrades and an increase in U.S. corporate defaults indicate “some cracks on the surface” of the domestic-growth outlook. In fact, in the latest quarter, the ratio of upgrades-to-downgrades is its weakest since the peak of the financial crisis in 2009.

Falling profits and increased borrowing at U.S. companies are rattling debt markets, a sign the six-year-long economic recovery could be under threat.

 

Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising.

 

 

Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades.

 

Meanwhile, the trailing 12-month default rate on lower-rated U.S. corporate bonds was 2.5% in September, up from 1.4% in July of last year, according to S&P.

 

Analysts expect profits at large companies to decline for a second straight quarter for the first time since 2009.

 

U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares. According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley.

“We’re seeing more widespread weakness across more industry sectors in the U.S.,” Ms. Vazza said. “It’s become broader than just the commodity story.”

 

“The metrics that you measure health and credit by have peaked a while ago,” said Sivan Mahadevan, head of credit strategy at Morgan Stanley. “They are beginning to deteriorate.”

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Tue, 10/13/2015 - 17:28 | 6664342 dimwitted economist
dimwitted economist's picture

Fuck that.. Everything is WONDERFUL!

Tue, 10/13/2015 - 17:28 | 6664343 lehmen_sisters
lehmen_sisters's picture

I like the look of this.

Tue, 10/13/2015 - 19:34 | 6664737 PlayMoney
PlayMoney's picture

Nice shiny, glittery, pretty charts of credit markets made of pixy dust, coming to a theatre near you soon.

Tue, 10/13/2015 - 17:29 | 6664344 CarpetShag
CarpetShag's picture

The name is Bonds. James Bonds.

Tue, 10/13/2015 - 17:30 | 6664349 wisebastard
wisebastard's picture

i see tons of fucking homeless people all over town..................its like a fucking zombie movie.................i cant help but think something is wrong here, but then agian im not a dumb ass fucking american. i got the balls to see the shit right in front of my face...................go back to sleep now

 

Tue, 10/13/2015 - 17:50 | 6664401 lehmen_sisters
lehmen_sisters's picture

Most everyone on this site sees that there is a huge problem in this country, not sure what your rant is supposed to prove.

Tue, 10/13/2015 - 17:44 | 6664387 yogibear
yogibear's picture

How about dowgrading the credit of the US?

That's right, Eric Holder and Obama shook-down S&P and seized their files because they were the only ones warning to downgrade the US credit.

Since Moody's and Fitch never threatened the US credit rating they were never touched.

Everyone already knows the US can never pay back it's debts.

Tue, 10/13/2015 - 17:50 | 6664398 DogeCoin
DogeCoin's picture

I think the solution to this problem is clear. MOAR STAWK BUYBACKS! MOAR DEBT! DOW 20,000!!

Tue, 10/13/2015 - 18:11 | 6664453 Yen Cross
Yen Cross's picture

  It looks like ES has some catching down to do. The HYG selloff is going to get much worse.

 It's nothing a few $trillion TOTUS bucks can't stave off until the elections though.

Tue, 10/13/2015 - 18:17 | 6664469 JerrySpringer B...
JerrySpringer B All Over This Shiznit's picture

What does Putin taking over the oil market after meeting with Saudi's over the weekend crushing ISIS dirty money wars have to do  with the bond market I wonder? Nixon/Saudi Petro Dollars...Putin/Saudi's new deal...think we can take a good guess where all this is going.

 

Vladimir Putin seeks to dump the dollar in regional trade

 - The Washington Times - Tuesday, September 1, 2015

http://www.washingtontimes.com/news/2015/sep/1/putin-seeks-dump-dollar-r...

 

Russia and Saudi Arabia have agreed to cooperate more closely in the fight against terrorism
Moscow. 11 October 2015

http://www.interfax.ru/russia/472617
Tue, 10/13/2015 - 18:34 | 6664512 JerrySpringer B...
JerrySpringer B All Over This Shiznit's picture
Is Saudi Arabia Making A Move To Sell Oil In A Currency Other Than The U.S. Dollar? (UUP, UDN, UGA, USO, XLE)March 23rd, 2012  


Michael Snyder:  The largest oil exporter in the Middle East has teamed up with the second largest consumer of oil in the world (China) to build a gigantic new oil refinery and the mainstream media in the United States has barely even noticed it.  This mammoth new refinery is scheduled to be fully operational  in the Red Sea port city of Yanbu by 2014.  Over the past several years, China has sought to aggressively expand trade with Saudi Arabia, and China now actually imports more oil from Saudi Arabia than the United States does.  In February, China imported 1.39 million barrels of oil per day from Saudi Arabia.  That was 39 percent higher than last February.  So why is this important?  Well, back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in U.S. dollars.  This petrodollar system was adopted by almost the entire world and it has had great benefits for the U.S. economy.  But if China becomes Saudi Arabia’s most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars?  And if the petrodollar system collapses, what is that going to mean for the U.S. economy?

Those are very important questions, and they will be addressed later on in this article.  First of all, let’s take a closer look at the agreement reached between Saudi Arabia and China recently.

The following is how the deal was described in a recent China Daily article….

http://etfdailynews.com/2012/03/23/is-saudi-arabia-making-a-move-to-sell...

Tue, 10/13/2015 - 20:38 | 6665006 FlSapo
FlSapo's picture

"Pull it!"

Wed, 10/14/2015 - 03:50 | 6666047 Paradigm
Paradigm's picture

the only way to fix is to let it burn 

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