Debt Markets Continue To Loosen

May 30, 2008

WSJ reports “investors return to riskier assets”.

Investors have shifted into sectors such as mortgage bonds and corporate debt. Investment-grade firms have capitalized on the demand by borrowing a record $123 billion this month, says Dealogic.


Another Improvement in the Mortgage Market

May 21, 2008

The Wall Street Journal writes about yesterday’s $1 billion dollar bond sale:

In a sign of possible improvement in the market for mortgage securities, HBOS PLC, the United Kingdom’s biggest home lender, sold about $1 billion in highly rated bonds backed by mortgage loans Tuesday.

It is the latest indication of what many are saying is the bottom of the credit crunch; other signs include the $750 million sale of an AmeriCredit Corp. unit’s bonds backed by auto loans to risky borrowers.

“This is really the first signs of a greenshoots recovery,” said David Basra, Citigroup’s head of securitized and real-estate markets for Europe, the Middle East and Africa.

When banks are able to sell the mortgages they make to institutional buyers in this way, it frees the banks up to make more loans. The main reason banks aren’t lending as much as they used to is the lack of a functioning secondary market. As the market recovers, mortgage lending will become easier.

More Credit Easing

May 20, 2008

The municipal bond market continues its march to normalcy.

The court’s decision comes as the $2.6 trillion municipal-bond market and other fixed-income markets begin to recover from the credit crunch. The Federal Reserve’s actions to shore up liquidity and revive banks’ functioning have lessened fears of a systemic financial collapse.

Investors fled from the muni market in the early part of the year as concerns grew about muni-bond insurers with subprime-mortgage-debt exposure. In addition, the muni-bond market was hurt after the auction-rate securities market seized up, depriving many municipalities of a principal source of funding.

The average yield on a high-quality 30-year municipal bond has declined 0.7 percentage points, after reaching a peak Feb. 29 when a wave of hedge-fund selling depressed prices

Full article here

Junk Rates Fall Below 8%

May 15, 2008

In an article symbolic of the media’s attempts to keep finding the dark side of any news, an article heralding the fall of junk bonds below the symbolically important 8% rate gets the ominous title: “Is Debt Thaw on Borrowed Time?”. Read the article, though and you find:

Meanwhile, the additional interest that most junk bonds pay over Treasury bonds has fallen by nearly two percentage points since mid-March to around 6.8 percentage points, according to Merrill Lynch data.

And a handful of firms, including power company AES Corp. this week, recently issued junk bonds with interest rates below the key threshold of 8%, the first time that happened in many months.


There are some encouraging signs regarding the leveraged-buyout overhang. The pipeline of unsold leveraged loans and bonds has shrunk to roughly $100 billion from more than $300 billion last summer, alleviating some strains on the market.

Read the full article here.

WSJ: Market for Mortgage-backed Securities Recovering

May 12, 2008

Larry Light writes in the WSJ that just in the last 4 weeks, there has been significant strengthening in the market for mortgage-backed securities:

Already, these mortgage-backed securities, or MBS, are showing signs that the market thinks the bad times may be ending. At their worst in mid-March, MBS yields were pumped up to 1.89 percentage points more than ultrasafe Treasurys, according to Merrill Lynch research. Lately, that spread has narrowed to 0.97 point. Historically, the gap is only around 0.3.

What this means is that mortgage bonds are still cheap, with many selling below face value — and that investors, now less scared by them, no longer need large yield premiums as an enticement to buy. “We seem to be headed back to the spreads we used to see,” says Tanya Beder, who heads New York financial advisory firm SBCC Group.

A strong market for the bonds will enable Fannie Mae and Freddie Mac to back more mortgages at better terms.

Read the whole article here.