Borrowing costs for companies from the U.S. to Europe to Asia expanded to 5.077 percent, the highest since November 2009, on Oct. 10, according to Bank of America Merrill Lynch index data. Global junk yields rose above 10 percent this month, the level considered distressed, for the first time since December 2009.
European Central Bank President Jean-Claude Trichet said yesterday that the sovereign crisis "has reached a systemic dimension" as political leaders race to recapitalize the region's banks with Greece on the brink of default. In the U.S., earnings excluding financial companies are forecasted to grow the least since the end of 2009 as the economic recovery falters, reducing borrowers' cushions to repay debt.
"Sovereign risk is poking its ugly head up in Europe over and over again," said Rajeev Sharma, a money manager at First Investors Management Co. in New York, where he helps oversee $1.5 billion of investment-grade debt. "The exposure banks and a lot of firms have to Europe is definitely a cause of concern."
Spain, Gross
The higher yields mean a borrower would have to pay an additional $912,000 in annual interest on $100 million of bonds compared with this year's low of 4.165 percent on Aug. 4, Bank of America Merrill Lynch index data show.
The extra yield investors demand to hold investment-grade and junk-rated corporate bonds worldwide reached 370 basis points, or 3.7 percentage points, on Oct. 4, the highest since July 2009, according to the Bank of America Merrill Lynch Corporate & High Yield Index. Spreads have since declined to 352. High-risk, high-yield debt is rated below Baa3 by Moody's Investors Service and lower than BBB- at Standard & Poor's.
Elsewhere in credit markets, Spanish banks including Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA had their credit ratings cut by S&P. The cost of protecting Morgan Stanley's bonds from losses fell to the lowest in almost three weeks. Bill Gross increased holdings of mortgage bonds in his flagship fund to the highest level since January.
Santander and BBVA, Spain's biggest banks, had their long- term rankings cut to AA- from AA with a "negative" outlook by S&P, which cited "dimming" growth prospects and "heightened" market turbulence...
