07 bondmarkets_rally_ch5

07 bondmarkets_rally_ch5 - Investment-grade corporate bonds...

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Astounding Yields 1
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Do bond markets buy the  rally? 7% on Monday alone (March 23).  Even as bank stocks have climbed 54% from their lows, US senior bank-bond  spreads remain at their widest levels since Lehman Brothers collapsed.  Bank bonds yield spread remains extremely wide at 5.99%  globally so far this year, nearly triple the number seen in the same period of 2008. 
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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.

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07 bondmarkets_rally_ch5 - Investment-grade corporate bonds...

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