The Coming Default Wave Is Shaping Up to Be Among Most Painful

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When the next corporate default wave comes, it could hurt investors more than they expect.

Losses on bonds from defaulted companies are likely to be higher than in previous cycles, because U.S. issuers have more debt relative to their assets, according to Bank of America Corp. strategists. Those high levels of borrowings mean that if a company liquidates, the proceeds have to cover more liabilities.

“We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain,” said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management. Continue reading

Moody’s Ponders Credit Downgrades for 120 Energy Companies

Oil prices received a jolt on January 21 and 22, as a cavalcade of bullish news conspired to push oil prices back into the $30s per barrel. The markets got excited at the possibility of more aggressive action from the European Central Bank on Thursday after comments from Mario Draghi, the bank’s president.Also, several voices weighed on oil prices, raising the questions about the unreasonable decline below $30 per barrel. The head of state-owned Saudi Aramco said that oil prices below $30 per barrel was “irrational,” and that he expected prices to rebound this year. Separately, Citigroup said that oil could be “the trade of the year,” because a price increase is nearly assured. After all, prices cannot go much lower, can they? Continue reading

U.S. opens door to Chinese investors

The United States faces a massive US$8 trillion infrastructure investment bill, and is courting Chinese investors since many of its own local governments are in financial difficulties, according to a US Chamber of Commerce report.

“The US is poised to undertake the most significant expansion and modernisation of its infrastructure since the 1950s,” the chamber said in its report.

“This is taking place in the context of significant pressure on federal and local budgets. The pressing need for capital to modernise US infrastructure is creating substantial new opportunities for Chinese investors.” Continue reading