The spread is increasing quite substantially now too. The effect is the inverse of the sale price of corporate bonds regarded as "junk": if the price that a bond can be sold at falls, then the effective yield on that bond rises. This doesn't affect those companies that have already issued bonds--they received whatever they sold them for when they were issued. However, any firm that needs to raise new finance and can't do it by equity or bank routes has to offer new bonds at that level--and that is becoming so prohibitive that these firms are likely to go bankrupt rather than seek new financing, if their cash flow situation was the reason they were considering getting new finance. BY the way, I'm sorry that I haven't had the time to take part in this discussion--far too many pressing jobs back in Sydney, plus some major personal changes have got in the way. But I have been delighted to see the postings on this front--I take back a lot of what I said some time ago about the list not focussing on the actual economic issues of the day. All the best tout le monde, Steve At 01:01 AM 5/11/2001 Monday, you wrote: >On Sat, 3 Nov 2001, Rakesh Bhandari wrote: > > > Fred, not quite sure of what one is to make of this: despite the US feds > > efforts to decrease both short term and now long term rates, junk debt > > borrowing costs have risen considerably; the spread over comparable > Treasurys > > has risen about 3x since mid 1998. There has been a squeeze on the > supply of > > credit of highly leveraged businesses and companies--see WSJ 10/29/01, > p. C1. > >Rakesh, this seems pretty clearly to result from increasing concern about >the world economy and the prospects for survival of high-risk firms. >I imagine those spreads will continue to rise. > >Fred
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