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‘Armageddon’ Loan, Bond Prices Keep Debt Investors on Sidelines

Bloomberg – Credit markets have fallen so far that they are providing a "once in a lifetime opportunity," and investors are still selling.

Prices of loans rated below investment grade declined to a record low 66.1 cents on the dollar, virtually guaranteeing investors get their money back, based on historical recovery rates, according to data compiled by Standard & Poor’s. Yields on corporate bonds show investors expect 5.6 percent of the market will go bust, the highest default rate since the Great Depression, according to Christopher Garman, chief executive officer of debt research firm Garman Research LLC in Orinda, California.

While central banks injected $3 trillion into the global economy, credit markets are tumbling because banks are clamping down on lending, forcing investors to unload assets they bought with borrowed money. The Federal Reserve said Aug. 11 that its quarterly survey shows most "domestic institutions reported having tightened their lending standards and terms."

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