Credit conditions good, credit quality not so much
In line with the grim mood taking hold of financial markets, S&P’s Dianne Vazza just emailed around a report that drives home the point. U.S. companies are still struggling even if access to credit markets has improved.
Thanks to a nice boost from government intervention in short-term markets, the risk premium on the S&P index for investment-grade corporate bonds fell more than 270 basis points from a peak of 578BPs in mid-Dec. Yet in the last 12 months, S&P axed corporate credit ratings 229 times, the highest number in a one-year period since March 1990 to March 1991. And there’s likely more to come, with 27.5% of all investment-grade issuers on watch for a downgrade or with a negative outlook that signals a company is heading in the wrong direction.
So for anyone hoping for a first half rally redux in the second half of the year, don’t hold your breath.