Credit Markets Flash Hottest Warning Signal Since Crisis

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by Ambrose Evans-Pritchard: Fears
of ‘Lehman-Style’ Tsunami as Crisis Hits Spain and Portugal

 

 
 

European credit
markets are flashing the most serious warnings signs in a year as
the yields on risker bonds rise sharply and a string of companies
cancel share flotations, raising fears that the recovery may falter
in coming months.

Jitters over
Chinese
credit tightening
and default
risks in Greece
and Dubai are causing bond vigilantes to batten
down the hatches across the world, bringing the most dramatic credit
rally for a century to a shuddering halt.

The Markit
iTraxx Crossover index measuring yields on lower-grade debt has
jumped by almost 130 basis points since mid-January to 514, while
the main index of investment grade bonds has jumped by a third to
93. "This is the biggest move since the financial crisis in
early 2009, said Gavan Nolan, Markit’s credit analyst.

"The index
is a leading indicator so it is a warning signal. This is being
driven by volatility in sovereign debt, with Greece being the biggest
issue at the moment but tightening in China could be a bigger negative
catalyst in the long-term," he said.

The rating
agency Moody’s said market ructions have led to a "material"
rise in borrowing costs over the last month, prompting the cancellation
of debt issues by the Dutch energy group New World Resources, Italy’s
Snai betting group, and the UK’s Travelport. Sixteen companies wordwide
have pulled debt issues worth a $7.3bn (£4.66bn) since mid-January,
including Canada’s Bombardier.

Dr Suki Mann,
a credit specialist at Societe Generale, said stronger companies
should weather any squall but concerns are mounting. "The world
has woken up to the real possibility of a double dip. These are
nervous times," he said.

BusinessEurope,
the EU-wide lobby, warned this week of a "very worrying situation"
as it become harder to raise money at a viable cost, if at all.
The group called on the European Central Bank to send a "clear
signal" about its collateral policy. Fears of tougher ECB rules
are a key factor causing market flight from Greek debt.

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the rest of the article

February
18, 2010

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