Thursday, June 21, 2007

The Pig Files: Corporate Debt is Out There

by Tanta on 6/21/2007 01:17:00 PM

From Bloomberg, "Corporate Debt Risk Jumps on Concern Over Bear Stearns Funds":

June 21 (Bloomberg) -- The perceived risk of owning corporate debt rose worldwide on concern that the paralysis of two hedge funds run by Bear Stearns Cos. may cause a chain reaction that sparks losses for other hedge funds and the banks that finance them.

Credit-default swaps based on $10 million of debt in the CDX North America Crossover Index of 35 companies surged as much as $10,000 to a nine-month high of $179,000, according to Deutsche Bank AG. In Europe, the benchmark iTraxx Crossover Index of 50 European companies jumped as much as 16,000 euros ($21,400) to 216,000 euros, the biggest one-day rise in three months, according to Deutsche Bank.

Investors worry that the funds' problems are ``going to bleed through to other funds or dealers that are invested in other asset classes, which could result in further liquidations and forced-selling'' of assets beyond mortgage securities, said Matthew Mish, a credit strategist at Barclays Capital in New York.

So . . . all this "covenant-lite" paper was "perceived" to have your basic garden-variety normal risk until some BS hedge fund went to the edge over subprime-backed CDOs, and then all of a sudden it looked a touch wanton? Why, next thing you know someone will tell me it's cheaper to go naked long than to hedge this stuff . . .