"The weakening market and economic conditions increase the likelihood of meaningful political responses," in the U.S. and Europe, Deutsche Bank AG analysts Gus Medeiros and Colin Tan wrote in a note to clients today. "An efficient response from the political system should meaningfully reduce sovereign risks and improve sentiment in the corporate world, which remains in good shape."
The global corporate default rate fell to 1.9 percent in July, from 5.5 percent a year ago, and will end the year at 1.5 percent, according to a report by Moody's Investors Service yesterday. Companies had a record $1.91 trillion in cash and other liquid assets at the end of the first quarter, up from $1.39 trillion two years earlier, Fed data show.
Corporate Bonds
The market value of more than 4,700 investment-grade U.S. dollar bonds sold by firms from Apache Corp. to Xerox Corp. has increased by $32.6 billion this month to $3.8 trillion, the Merrill Lynch U.S. Corporate Master index shows.
The yield premium investors demand to hold to own the debt instead of government securities surged 16 basis points yesterday to 190, the highest since last September, the data show.
Relative yields on global junk bonds soared to the most in more than a year, with spreads expanding 125 basis points to 692 this month. The market value of the Global High Yield Index has dropped $51.2 billion this month to $1.27 trillion, the Merrill Lynch indexes show.
"We are reducing holdings of credit as much as possible," said Tadashi Matsukawa, head of fixed income in Tokyo at PineBridge Investments Japan Co. "No one wants to go out without an umbrella knowing there will be a storm."