Lagging IndicatorsWhen the economy is flush, as it was so spectacularly until relatively recently, cash is not a hard thing to come by. Everybody is doing well, and there's a feeling that the good times will continue. Creditors become a little less stringent, and loan growth accelerates. Your lay-about brother gets a loan for a new truck, and the corporate equivalents of your brother -- companies like Pillowtex -- get loans, too.
|Credit Trouble? |
Commercial and industrial delinquencies as a percentage of outstanding debt, quarterly
|Source: Federal Reserve.|
High-yield debt issuance, in millions of dollars
|Source: Thomson Financial Securities Data|
Sanford and SonSo far, it has been the junk-bond market where the tightening credit environment has had the greatest measurable effect. With the ballooning of yields, the issuance of high-yield debt has all but dried up. This has a knock-on effect -- companies that were depending on the high-yield market to finance their way to profitability are running into financing troubles. Particularly hard hit in the high-yield market have been CLECs like ICG and GST Communications, which was also driven to bankruptcy. And those high-profile bankruptcies themselves have hurt the high-yield market. "The percentage of distressed issues in the high-yield universe has grown and driven average yields, and thus spreads, wider," says Bear Stearns high-yield analyst Mike Taylor. "About a quarter of the market is now distressed."
|Bigger and Wider |
Merrill Lynch High-Yield Master Index yield,
with spread vs. 10-year Treasurys
|Source: Merrill Lynch|
|Tailing Off |
Year-over-year loan growth
|Source: Federal Reserve|