Thursday, February 11, 2010

The Bond Market Is Nervous

The credit problems in the euro block have caused the bond markets to hiccup, especially for lower quality borrowers.

Easy credit played a big role in last year's massive rally that began in March. Although one week does not make a trend, this is something I'm watching carefully.

Here's an excerpt from, with the full link below:

Bond Sales Tumble 90%, Junk Returns Go Negative: Credit Markets

By Bryan Keogh and Gabrielle Coppola

Feb. 11 (Bloomberg) -- Investment-grade debt sales are drying up and returns on high-yield bonds have turned negative for the year as investors wait to see whether European leaders can contain Greece’s budget crisis.

Borrowers in the U.S. and Europe sold $4.71 billion of high-grade securities this week, the least this year and about 90 percent less than the average $52.9 billion, according to data compiled by Bloomberg. Speculative-grade, or junk, bonds in the U.S. have lost 0.09 percent in 2010 after gaining 1.52 percent in January, Bank of America Merrill Lynch index data show.

Investors are avoiding credit risk as European Union leaders meet to hammer out an aid package for Greece. While relative borrowing costs in the U.S. remained steady yesterday and prices to insure against defaults fell, Huntsville, Alabama- based telephone service provider ITC Deltacom Inc. canceled a $325 million bond sale, citing “current market conditions.”

“Sentiment has turned significantly amid concerns about sovereign deficits and problems surrounding Greece and other peripheral euro-zone economies,” Simon Ballard, a senior credit strategist at RBC Capital Markets in London said yesterday. “For the moment, we’re unlikely to see much in the way of primary market activity as investor sentiment remains fragile and the broad market feeling is one of nervousness.”