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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (30969)4/20/2005 12:35:18 PM
From: ild  Read Replies (1) of 110194
 
Date: Wed Apr 20 2005 12:11
trotsky (widening credit spreads) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
in the course of last week's stock market downswing, another measure of confidence has suddenly suffered a dramatic reversal - credit spreads ( i.e., the yield spread between higher and lower grade debt paper ) have seen their largest and swiftest widening since early to mid 2002. this is a highly significant development - it shows that risk aversion is rising more quickly now ( the first signal denoting growing risk aversion was the failure of the Nasdaq to confirm a new high for the move in the Dow ) .
this in turn means that financing corporate debt has now become a lot more difficult, especially for low rated borrowers. as a consequence of this, a major support prop for the stock market has suffered a setback ( the debt-financed buybacks of stock ) .
therefore, bounces remain very suspect, and this holds for everything connected to the 'reflation' trade, including industrial commodities. otoh, it also means that one of the main reasons for the Fed to adopt a tighter policy stance has lost its impetus - everything points to 'pause' and eventually, 'reversal'.
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