MONEY MASTER

U.S. corporate credit spreads have hit their lowest levels in nearly two decades , signaling optimism in the market, although some experts warn that investors might be underestimating looming economic risks. The spread on the ICE BofA U.S. Corporate Index , a benchmark for high-grade debt, dropped to 84 basis points this week , its lowest since 2005, down from 92 bps at the end of September. Similarly, spreads in the ICE BofA U.S. High Yield Index , which tracks junk bonds , dipped to 289 basis points last week, the lowest since March 2007, reflecting strong demand for riskier assets. These spreads indicate the premium investors demand to hold corporate bonds over safer government securities, serving as a gauge of market confidence. The strong demand for below-investment-grade bonds suggests investors view financial conditions as healthy and are less concerned about corporate defaults. According to Steven Oh, global head of credit and fixed income at PineBridge Investments, the prob...

  When US-based construction material supplier Wilsonart issued a junk bond to raise US$500 million (RM2.13 billion) for an acquisition this summer, a research firm warned potential investors about the bond's weak protections. The bond’s covenants could allow the company to move valuable assets to another entity and raise more money, potentially disadvantaging bond investors, according to Covenant Review , a research firm. This warning comes amid growing concerns in credit markets as more companies engage in practices like "liability management exercises," where they borrow more against the same assets. These practices, often favoring some creditors over others, have been dubbed "creditor-on-creditor violence," prompting some creditors to unite to protect their interests. Despite the warnings, investors eagerly purchased Wilsonart's offering, underscoring a paradox in US credit markets. While investors face the consequences of weak covenants, they continu...