Markets

Bond managers expect government bailout

By Jame DiBiasio | 31 March 2008
Keywords: bear stearns

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The only way to restore confidence in credit and save the securitisation market may be to establish a buyer of last resort.

Deutsche Bank issued a report showing spreads on single-A rated corporate bonds now imply an out-of-this-world default rate of 15%. Credit spreads have widened dramatically since June 2007 and offer incredible value. The report came out just as the US Federal Reserve connived with JPMorgan to take over Bear Stearns at a humiliating price, and value in credit has risen since. So why aren’t fund managers rushing to buy?

One reason is that some managers at dedicated bond houses say the tight spreads of early 2007 – when some banks’ implied default cost only 2 basis points – was a ...

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