Credit markets continue their slow march back to some sort of solid ground, but plenty of analysts are wondering why things should be getting better, given that corporate profitability and economic growth look plenty soggy.
First the good news from Monday's credit markets:
-Investors are less and less worried about banks defaulting on their debts. The cost of buying insurance against a bank default fell to the lowest in 14 weeks as yet more banks unveiled capital raising measures to strengthen their balance sheets. HBOS PLC, the largest mortgage provider in the U.K., is facing a declining housing market and reports say the company will sell stock.
-Financials weren't the only winners. The perceived risk of owning bonds of everything from car makers to cigarette purveyors dropped Monday, with European companies generally outpacing their North American counterparts.
Now the bad:
-Standard & Poor's cut its forecast for how much money investors could expect back after defaults on mortgage-linked collateralized debt obligations. So what, you say? Well, S&P said that could lead to more ratings cuts on CDOs, starting another wave of selling and writedowns by financial institutions that hold the CDOs.
- Corporate credit is getting worse in Europe as the continent's economy falters, Moody's Investors Service says. "The negative outlook is quite alarming," wrote analysts in Moody's London office, citing the likely U.S. receission, nervous financial markets, rising costs and a soaring euro. Moody's said it gave out 32 "negative" outlooks for European companies in the first quarter, compared to 11 "positive," the widest spread between the two numbers since 2001.
-Morgan Stanley predicts that U.S. bank earnings will fall 26 per cent this year and 15 per cent in 2009.
-U.S. home vacancies rose to a record 18.6 million in the first quarter. To put the size of that hole in the housing market in perspective, if everyone in Canada, where there are about 12 million occupied homes, moved south to those empty U.S. homes, we'd only fill up two-thirds of them. (Thanks to Statistics Canada for the figures.)
