Tags: fed | yellen | credit risk | economic growth

Global Credit Risk Rises as Yellen Comments Fan Growth Concerns

Image: Global Credit Risk Rises as Yellen Comments Fan Growth Concerns

Thursday, 11 Feb 2016 10:09 AM

Credit risk rose around the world after comments by Federal Reserve Chair Janet Yellen renewed concerns about global growth.

The cost of insuring U.S. corporate debt climbed to near four-year highs, after Yellen said declines in equities and other markets may weigh on the outlook for the U.S. economy. Gauges of credit-default swaps in Europe also jumped to the highest since 2013 following Deutsche Bank AG’s comments about potential charges on a consumer unit and lower-than-expected earnings at Societe General SA.

Credit-default swaps have surged this week amid a global market rout and efforts by Deutsche Bank, Germany’s largest lender, to reassure bondholders. Confidence in policy makers’ ability to support the global economy may also be waning after Yellen’s suggestion of a possible delay in interest-rate increases failed to revive markets.

“It’s been a nightmare few days,” said Dan Karsenty, a fund manager at Eiffel Investment Group in Paris, which oversees more than 500 million euros ($568 million).

The Markit CDX North America Investment Grade Index climbed as much as six basis points to 128 basis points, according to data compiled by Bloomberg. The gauge for speculative-grade debt jumped 16 basis points to 592 basis points, the highest since 2012.

The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose five basis points to 122 basis points, the highest since June 2013, according to data compiled by Bloomberg. An index of default swaps on junk-rated debt climbed 23 basis points to 476 basis points.

Deutsche Bank

Deutsche Bank’s riskiest debt fell to record lows on Thursday after the lender said it may to have book further charges on consumer arm Deutsche Postbank AG. The lender this week told investors it would be able to meet payments on so- called additional Tier 1 notes this year and next.

A marketwide collapse in lenders’ riskiest debt means the worst-hit bonds issued by Deutsche Bank, UniCredit SpA and Banco Santander SAare now pricing in an average of three years of skipped coupons, according to JPMorgan Chase & Co. analysts. Banks can be barred from making coupon payments if capital falls below a trigger level.

“The difficulty is to find who is the buyer for these instruments,” said Karsenty. “I don’t think anyone has the answer.”

Deustche Bank’s 1.75 billion euros of 6 percent notes fell six cents to 70 cents on the euro, according to data compiled by Bloomberg.


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Credit risk rose around the world after comments by Federal Reserve Chair Janet Yellen renewed concerns about global growth.The cost of insuring U.S. corporate debt climbed to near four-year highs, after Yellen said declines in equities and other markets may weigh on the...
fed, yellen, credit risk, economic growth
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2016-09-11
Thursday, 11 Feb 2016 10:09 AM
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