Cor­po­rate spreads have declined con­sid­er­ably since the “panic peaks” of late last year. For exam­ple, the cur­rent Baa spread in the US is 374 basis points com­pared with 611 basis points in Decem­ber as shown in the chart below.

The chart also shows cor­po­rate spreads dur­ing other peri­ods of intense eco­nomic, finan­cial and geopo­lit­i­cal strains. Strik­ingly, cor­po­rate spreads widened to 724 basis points in 1932 dur­ing the Great Depression.

David Rosen­berg, chief econ­o­mist and strate­gist at Gluskin Sheff & Asso­ciates, said: “To be sure, cor­po­rate spreads have come in a long way from their near cri­sis highs, but look­ing at prior peaks around major events and eco­nomic down­turns, it does appear as though there is still a lot of very bad news priced into the sector.”

Most indi­ca­tions are that the credit mar­ket tide has turned on the back of the mas­sive refla­tion efforts orches­trated by cen­tral banks world­wide and that the credit sys­tem has started thaw­ing. How­ever, although the con­va­les­cence process seems to be well on track, it still has a way to go before con­fi­dence in the world’s finan­cial sys­tem returns to more “nor­mal” lev­els, liq­uid­ity starts to flow freely again, and the eco­nomic recov­ery can commence.

Click here or on the image below for a larger chart.

Source: Gluskin Sheff & Asso­ciates, June 19, 2009.

[CSSBUTTON target="http://www.investmentpostcards.com" color="006600" textcolor="ffffff"]Visit Invest­ment Post­cards from Cape Town[/CSSBUTTON]

Dr. Prieur du Plessis is an investment professional with 26 years' experience in investment research and portfolio management. More than 1,200 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns, including his blog, Investment Postcards from Cape Town. He has also published a book, Financial Basics: Investment. Prieur is Chairman and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and a number of foreign countries. He also serves as Honorary Consul of Slovenia for South Africa, actively developing economic, cultural and scientific relations between Slovenia and South Africa. Prieur is 54 years old and live with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily. Read more from the author/contributor here.

Comments

Comments are closed.