资源描述
Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Outline,Overview,Market Concerns,Credit Risk Limits,Credit Risk Models,Credit Risk Diversification,Credit Risk Management Process,Overview:,Current State of the Credit Market,Although Fixed Income has recently outperformed equity,the Corporate Bond market has severely underperformed Treasuries,The market has experienced rising defaults,downgrades,and an unprecedented number of Investment Grade credits falling into High Yield(a.k.a.“Fallen Angels”),“Fallen Angels”are overwhelming the High Yield market as they number 14 of the top 25 issuers and comprise 20%of the total amount outstanding in High Yield,Telecom/Energy have been at the core of the fundamental deterioration in credit with outsized spending to meet unrealistic demand expectations and aggressive expansions into energy trading in utilities,Extreme market volatility and limited liquidity best characterizes the current state of the corporate bond market,Banks are restricting access to liquidity and the resulting illiquidity is contributing to the credit markets volatility,Portfolio diversification is difficult to achieve given that 33%of amount outstanding and 42%of new issue volume are in the the top 25 names,Survival depends on minimizing the occurrence and magnitude of distressed credits,Market Concerns,What is contributing to the current credit volatility?,Bear equity market and corporate scandals,Credit recession(stressed credit market),Liquidity crisis,Historically low rates,Economic recovery unclear,A Bear Market in Equity,Volatility at historic highs since 1997,3+years upside of technology bubble,2.5 years of bubble bursting and corporate scandals,Volatility measure of “%days per year S&P 500 Index moved greater than+/-1%”in August 2002 was 43%versus 22%historic average since 1925,Current downturn deepest since 1973-74 and longest since 1929-32 or 1946-49,At its July 2002 low,the S&P 500 was 48%below its March 2000 peak and the decline has endured for 29 months.This makes it the longest bear market since 1946/49 and together with the 1973/74 cycle,the steepest of the post-WWII period.,(1),(1),The Bank Credit Analyst,August 2002,A Bear Market in Equity,Valuations are still above historic norms on almost every measure(Price/Earnings,DividendYield,Price/Book,Price/Sales),except for,EarningsYield/BondYield,(which is near fair value,as bond yields are at historic lows),Earnings remain under pressure,Outflows from domestic equity mutual funds and foreign sales of US stocks has intensified since June 2002,(2),(2),Ned Davis Research Inc.,September 2002,Recent Equity and Fixed Income Returns,(For Periods Ended 10/31/2002),Source:Lehman,Standard&Poors,Credit Market Under Stress,Unprecedented numbers of distressed credits,(“Fallen Angels”are investment grade credits that have been downgraded to high yield),$115 billion Fallen Angels YTD through October 2002,Since 2001 default rates have exceeded 1991 highs,Default rates have been rising continuously since 1999.It has been like a credit recession for several years and I expect it to continue until default rates clearly have peaked.”Edward Altman,Ph.D.NYU Stern School of Business,2001 experienced the most ever Chapter 11 filings with 170 and pre-petition liabilities of$230 billion,First half of 2002 had 74 filings totaling$130 billion,Since June 1997 a series of financial crises have resulted in huge volatility in and widening of credit spreads;this has produced sustained negative excess returns in corporate issues,Moodys downgrade/upgrade ratio rose from 1.4 in 1998 to 4.1,Moodys year-to-year defaults rose from 1.3%in 1998 to 10.53%in June 2002 and are at 9.2%for September 2002,Source:Lehman,Moodys,Edward Altman,Liquidity Crisis,Credit contraction in bank lending and commercial paper is causing a“liquidity crisis”,reversing trend for last 5 years of 20%annual expansion,Bank lending is currently 15%lower than last July,Non-financial CP has contracted 47.7%to a low of$179.5 billion in June 2002 from high of$343.3 billion in December 2000,Financial leverage(ratio of current debt to total market capitalization)of corporations increased in 2002 to 26.6%(on$4.5 trillion),the highest level since the 1990-91 recession,Source:Lehman,Historical Lows For Interest Rates,Aggressive Fed easing with Fed Funds at 1.25%since November 6,2002 cut of 50 bps,The resulting yield curve is the steepest since Fall 1992,Rates at 4-decade lows,10-year Treasury Note yield of 3.57%on October 9th was at a 44-year low,As of November 11,2002 the 10-year has risen 58 bps from this low,Historically low rates led to another mortgage refinancing wave which is supporting consumer spending,Expectation is for interest rates to stay low this year,rising next year as the yield curve to flatten from the short end,Source:Bloomberg,UPDATE,Uncertainty of Economic Recovery,Blue Chip consensus GDP growth is forecast at 1.6%in Q4-2002
展开阅读全文