Sunday, July 24, 2016

S&P 500 Hits New Highs While Bond defaults are at highest level since 2009

July 24,2016
one small voice

Corporate bond defaults have just crossed an ominous milestone. Now 100 companies have defaulted on debt, 50 percent more than for the same period in 2015 and the highest level since 2009, according to S&P Global Ratings.

While the S&P 500 reaches new all time highs day after day, the IMF is about to downgrade global growth again, $13 trillion in global bonds trade with a negative yield, and the shape of the US yield curve is where it was the last time the US entered a recession. The ongoing surge in corporate defaults is now on pace to surpass 2009, the worst year in history for corporate bankruptcies.

According to S&P, with half of 2016 in the history books, corporate bond defaults just hit the milestone "century" mark, or 100, last week, rising by 50% from the number of bankruptcies at this time last year and the highest level since the US emerged from recession in 2009. As a result, the total amount of defaulted debt has risen to $154 billion.

But what is most troubling is that at the current run-rate, with half of 2016 still to come, the global debt default total is on pace to surpass 2009 for the all time corporate bankruptcy record.

Now of coarse given the sharp growth in the shale-based oil production in America ie Fracking over the last two decades, it is little surprise most of the defaults were US based energy companies .

Its different this time ? With the energy and mining sectors stripped out of the calculations , the default rate is running at the lowest level since the last peak during the 2008-09 financial crisis, claimed asset manager M&G noted in April.

Given the concentration in one sector I think it's a bit early for a parachute ,but that's what they said about sub prime mortgages and or CDO's in 2008 and 2009. Its just the housing sector no need for panic ? Could this be the begging of something big or just sectors dynamics on the mend?

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