Credit Quality Outlook Drops As Times Square Counts Down, Says Report
Global bond markets have cause to be nervous on myriad fronts at the close of 2007, ranging from rising risk premiums, higher probability of downgrades, accelerated distress (from very low levels), and the looming specter of an eventual upswing in the default cycle from all-time lows, according to an article published today by Standard & Poor’s.
The report, titled “Annual Wrap-Up And 2008 Outlook: The Credit Cycle Bares Its Teeth (Premium),” says much of the maelstrom in the short-term debt and mortgage-related markets has shaken investor sentiment considerably, even though the collateral damage in the corporate bond market has so far been limited.
“In 2008, credit quality will deteriorate from present levels, with downgrades and defaults picking up as the year progresses,” said Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. “In contrast with the two prior years, the deteriorating credit quality will be propelled to a greater extent by factors linked with the underlying operating performance rather than in response to bond-negative financial strategies, such as acquisitions, buybacks, and dividend payouts.”