Dec 27 - Banks represented 35% of the global fallen angels in 2012 (through
Dec. 10). In our most recent fallen angels report, we noted that a plurality of
fallen angels--14 of 40 total--is in the bank sector, and most of these banks
are based in Europe. We define fallen angels as issuers that Standard & Poor's
Ratings Services downgrades to speculative grade ('BB+' and lower) from
investment grade ('BBB-' and higher).
"Over the course of the year, the U.S. composite bank spread has tightened to
240 basis points (bps) from 404 bps," said Diane Vazza, head of Standard &
Poor's Global Fixed Income Research. "The tightening comes at a time when the
U.S. bank system has shown more stability than the eurozone's (European
Economic and Monetary Union's), despite the potential fiscal cliff." The
eurozone is still feeling the pinch of high unemployment rates and austerity
measures, while the U.S. unemployment rate has declined to its lowest point in
four years and the Federal Reserve has announced that it will keep short-term
interest rates low until the U.S. unemployment rate drops to less than 6.5%.
Speculative-grade issuance has decreased from $12.9 billion to $4 billion over
the past week, and the spreads have tightened by 6 bps to 560 bps. The
speculative-grade spread is tighter than both its one-year moving average of
644 bps and its five-year moving average of 759 bps. Investment-grade issuance
has decreased from $11.2 billion to $4.8 billion over the past week, and the
spreads have tightened by 3 bps to 183 bps. The investment-grade spread is
tighter than both its one-year moving average of 204 bps and its five-year
moving average of 247 bps.
Over the past week, the Credit Default Swap North America High Yield Index
spread has widened by 10 bps to 475 bps, and it is tighter than it was at the
start of the year when it was 662 bps. The Credit Default Swap North America
Investment Grade Index has widened by 1 bp to 134 bps, and it is tighter than
it was at the start of the year when it was 138 bps.