Big Unwind May Lift Cost of Corporate Borrowing

Financial Times (02/21/08); Davies, Paul J.; Cookson, Robert; Macckenzie, Mike
Experts say higher credit derivatives pricing will restrict access to credit for regular businesses, and investment-grade credit is being hit harder than junk-rated credit. According to Jonny Goulden of JPMorgan's European credit derivatives research division, "As demand for credit risk in structured credit products grew, borrowing costs for issuers decreased as their spreads tightened. Now we are seeing a reversal of this, issuers in turn will be left with higher credit borrowing costs." The absence of bank leverage is taking its toll on high-quality, triple-A credit. Morgan Stanley interest rate strategy head Jim Caron notes, "This crisis situation is now more about liquidity and leverage instead of credit valuations."