U.S. Junk Bond Default Rate Rises to 10.2 pct. 147 Companies Have DEFAULTED On These JUNK BONDS YTD. More JOBS Will Be In Jeopardy As A Result!!!

When I worked for the investment industry my boss who was also my mentor used to always tell me, "The bond market is like a dog and the stock market is its tail. Always remember that the dog always wags its tail." This news is extremely important because it is an indicator of what is to come. While everybody is paying attention to the stock market rallying week after week at an astronomical rate, the junk bond market is bleeding to death. Eventually this dog will wag its tail and you will witness a major correction.

Now for those of you not familiar, the reason why it is called the junk bond market is because it is a HIGH RISK INVESTMENT and therefore given the LOWEST GRADE/RATING. It's referred to as JUNK for a reason! Corporations sell various types of securities in order to obtain capital ie; stocks and bonds. The lower the security grade the higher the interest rate the corporation must pay because of the risk of default. The bond market is the corporate debt market. Many corporations are on the BRINK of bankruptcy because they cannot get short term loans from the banks like before to cover their operating cost. Please note the S&P has DOWNGRADED $2.9 (T)RILLION of company debt year to date up $1 (T)RILLION from the same period last year. 147 companies have DEFAULTED on these JUNK BONDS year to date. More JOBS will be in jeopardy as a result.

You see the U.S. government has been funneling 100s of BILLIONS of dollars to the BANKSTERS DAILY through the U.S. Treasury and the Federal Reserve. However, the BANKSTERS have NOT been doing business as usual like they have repeatedly claimed to be. The too big to fail BANKSTERS have been thrown a LIFELINE and they in turn kicked corporations to the curb. When the credit market suddenly froze, corporations who counted on commercial paper (short-term loans) began issuing bonds to compensate for their capital needs. Commercial paper is defined as an unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivable and inventory. Maturities typically range from 2 to 270 days. I want you to understand that Commercial paper makes the U.S. economy hum. Now most of these corporate bond issuance is being DOWNGRADED TO JUNK! Which means the ratings agencies believe these corporations are a HIGH RISK of default.

*********************************************************************

Reuters
U.S. junk bond default rate rises to 10.2 pct
written by Rolfe Winkler
Thu Sep 3, 2009 10:36am EDT

NEW YORK, Sept 3 (Reuters) - The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July as the worst recession since the 1930s left more companies unable to pay off debt, Standard & Poor's data showed on Thursday.

The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.

Default rates have surged from less than 1 percent in 2007 as an economic downturn squeezed corporate revenues and a global credit crunch dried up funding. A 13.9 percent default rate would be the highest since the Great Depression of the 1930s, when it hit 15.9 percent.

August's default rate is preliminary and subject to revision, S&P said.

Eighteen companies defaulted in August, bringing the year-to-date total to 147.

"Credit metrics in the U.S. show continued deterioration of credit quality and restricted lending conditions," S&P said.

In another sign of corporate distress, the rating agency has downgraded $2.9 trillion of company debt year to date, up from $1.9 trillion in the same period last year.

Just $73.6 billion of debt has been upgraded, though that is up from $35.8 billion in the same period last year.

"The bright spot for credit markets amid the current economic downturn is an increase in new issuance," S&P said. Junk-rated bond sales have grown to $73.6 billion through August from $35.8 billion in the same period last year. Investment-grade issuance has risen to $603 billion from $537 billion, according to S&P.

A reopening of the bond market following last year's credit freeze is allowing companies to refinance debt, keeping defaults lower than they otherwise would be.