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Credit Risk Is Staging a Comeback 

August 10, 2015

Tracy Alloway, Bloomberg Business

For years, investors poured money into junk-rated corporate debt with impunity. Arguably, bonds were bought indiscriminately, with seemingly little thought about the actual risk of a company defaulting on its debt.

Interest rates, after all, were hovering at zero percent, money was plentiful, and there seemed little likelihood that a company would find itself suddenly starved of credit. With corporate default rates forecast to remain stubbornly low, one junk-rated company was pretty much the same as another.

That is beginning to change.

The collapse of the commodities complex is feeding into the credit markets, as energy companies have played a significant role in bond sales in recent years. You can see the trend in the chart below from Deutsche Bank, which shows spreads of all CCC-rated bonds, in blue, and CCC-rated spreads stripping out all the bonds sold by energy companies, in red.

Read more: Bloomberg Business

 
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