Bangkok--28 Apr--Standard & Poor's With investors concerned about deteriorating economic and credit fundamentals, high-yield spreads took a beating in the first quarter of 2008, blowing out 210 basis points (bps) before rebounding 30 bps in the first two weeks of April, according to an article published yesterday by Standard & Poor's. The report, titled "U.S. Speculative-Grade Spreads Sector Index Review: Spreads Under Pressure In Rising Default Rate Environment," says that credit quality is already slipping, as high-yield downgrades are outpacing upgrades 2.9 to 1. "Recessionary economic conditions should cause profit growth to retreat for a number of firms, which will erode credit quality and increase default pressure," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "Unlike large investment-grade multinationals, with diverse revenue streams and large cash balances, many speculative-grade firms are either highly leveraged or have a high level of business risk stemming from a less diverse product or customer base, aggressive financial strategies, or a regional focus that will raise credit risk as U.S. demand slows." All sectors have had increases in option-adjusted spread levels since the beginning of 2008, with the media and entertainment sector leading with the widest movement (up 333 bps or 60% between Dec. 31, 2007 and April 14, 2008), while the automotive, health care, and utilities sectors were the best relative performers. Ms. Vazza added, "Our high-yield spread index has shown a decent correlation with equity-market volatility, measured by the VIX, over the past five quarters. However, in 2008, high-yield market spreads and VIX movements have decoupled because equity-market volatility remains high, though stable in the 25 range, while spreads have continued to move upwards so far this year." The report is available to RatingsDirect subscribers who have upgraded their package to include the Global Fixed Income Research add-on. RatingsDirect is 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 with the Global Fixed Income Research add-on, please contact your local Standard & Poor's representative or [email protected] for further information. 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 Contact: Diane Vazza, New York (1) 212-438-2760