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Spreads Diverge From Rating Changes

Difference increases as investors price in slow growth, Europes debt crisis.

By Shannon D. Harrington, Sapna Maheshwari, Bloomberg | Updated on September 06, 2011

Fear is overpowering greed in the $7.6 trillion U.S. corporate bond market, with investors pricing in the biggest reversal in credit quality in more than two decades as the economy falters and Europe’s debt crisis worsens.

While Moody’s Investors Service raised the ratings on 12 investment-grade companies in August and lowered seven, relative yields on corporate debt jumped more than half a percentage point, the third-largest increase since at least 1989, Deutsche Bank AG strategists say. At no point in at least 22 years has the difference between bond spreads and the ratio of upgrades to downgrades been greater, according to Deutsche Bank.

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