Bangkok--24 Oct--Standard & Poor's
Conditions seem to have settled down substantially in the corporate bond market, suggesting an unusually quiet final quarter for the year, according to an article published today by Standard & Poor's Ratings Services. The article, which is titled "Outlook For U.S. Corporate Bonds: A Quiet Fourth Quarter," says that market volatility has tapered considerably. Spreads have been volatile, but the latest dip shows a fair amount of risk tolerance and complacency on part of investors.
"Within this sanguine picture, risks remain skewed to the upside, particularly as the economy slips toward our forecasted 2.3% real GDP growth in 2007," noted Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Thus, even if fourth-quarter macro performance exceeds expectations, the deceleration in profits growth for next year remains a negative for corporate credit metrics." In short, the market might have priced in too much good news and remains susceptible to both idiosyncratic and systemic risks in the quarters ahead.
A series of Amaranth-type debacles could spur a sharper exit strategy from lower quality credits, causing the outsized bond market returns garnered in the third quarter to rapidly fizzle away. Note that bondholders remain at a disadvantage in the current environment, since it seems that firms may be more willing to risk a lower credit quality status to maintain shareholder value, rather than simply aim at maintaining a high credit rating. Thus leverage metrics, and credit quality, could suffer more than anticipated.
The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com . If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to [email protected] . Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com ; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided.
Media Contact:
Mimi Barker, New York (1) 212-438-5054, [email protected]
Analyst Contacts:
Diane Vazza, New York (1) 212-438-2760
Mimi Barker, New York (1) 212-438-5054
Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 7,500 employees, including wholly owned affiliates, located in 21 countries. Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com .
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