<<To make matters worse, it's possible we're going into a period of even higher rates of default on corporate bonds, according to William Gross, a managing director of Pimco, the huge California bond investment firm. Gross, the ultimate lunch partner for bond issuers, says, "There are storms ahead, and spreads won't narrow anytime soon. Yes, liquidity is down because there is a lack of market making, but the big story is the credit-quality problem that is unfolding behind the scenes." Gross cites, for instance, the default rate on junk bonds, which has risen sharply over the past 12 months.
At the moment, of course, there isn't a formally declared crisis in the U.S. financial markets. A grim Alan Greenspan isn't calling for calm. CNBC isn't on deathwatch. But the widening spreads are close to where they were at the height of the crisis last year. And any number of potential problems--a recession, a Y2K crisis, or a market panic--could make things a lot worse in a hurry. >>
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