Filed under: Forecasts, Bad news, Countrywide Financial (CFC), Housing

Bloomberg News reports that a measure of the risk that corporations won’t make their bond payments is at record high levels. In 2006, it became clear that subprime mortgages might be in trouble and that their problems would hurt investors in mortgage backed securities (MBSs). Now there could be trouble in the $3.7 trillion corporate bond market.

How so? The CDX, or Markit CDX North America Investment Grade Series 9 Index, a benchmark gauge of default risk tied to the bonds of 125 companies including Countrywide Financial Corporation (NYSE: CFC), climbed 3.75 basis points to 100 basis points as of 8:15 a.m. this morning in New York. The index is at the widest since the CDX indexes started trading in 2004.

Despite denying bankruptcy rumors, bond buyers are not convinced that Countrywide will be able to stave off bankruptcy. Credit-default swaps on Countrywide moved deeper into distressed levels. Sellers of credit-default swaps were demanding 30% upfront and 5% a year for contracts protecting Countrywide bondholders from default for five years. That’s up from 28% upfront and 5% a year at the close of trading yesterday.

Continue reading Will the $3.7 trillion corporate bond market follow subprime’s decline?

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This entry was posted on Wednesday, January 9th, 2008 at 3:53 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.