Bond Outlook August 8th

Just how fundamental a change has already taken place in market conditions seems to have escaped the attention of stock markets, ever ready to roll forward again after each downward adjustment. In contrast, credit markets reflect a real sea change, which may best be described as shift from a borrowers’ to a lenders’ market. Spreads are widening, downgrades increasing and a variant on bond terms has (re)emerged in the form of “step ups”, whereby coupon rates increase by 25 bps for each level of future downgrade.