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Unformatted text preview: Investment-grade corporate bonds were pricing in a 5-year default rate of 40% assuming average recovery rates. Even if one assumes zero recovery after default, prices suggest a 25% default rate over 5 years. The worst 5-year investment-grade default rate since 1970 is 2.4%. The average is 0.9%. Demand in the credit markets is mostly for nonfinancial debt, but this is being met by huge supply as borrowers look to bypass the banking system. 3...
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This note was uploaded on 09/25/2010 for the course FINE FINE 2000 taught by Professor Mingdong during the Winter '10 term at York University.
- Winter '10