Wednesday, September 29, 2004
GDP, junk bond spreads and the election
"Jane Galt" declares "unpanic time" for the Republicans on account of rising GDP:
Apart from headline statistics tossed around by the government, there are some similarly interesting clues to recovery in high-yield debt default rates, which have declined from more than 10% two years ago and 6% a year ago to around 3% for the last six months. The "spread" between new-issue BB loans and U.S. Treasury securities of similar duration has declined from almost 400 basis points (i.e., 4%) in the fourth quarter of 2002 to a little more than 200 basis points (i.e., 2%) for the last six months. Both of these figures suggest that the credit -- or at least the liquidity -- of middle-tier American companies has improved considerably this year, which would be virtually impossible without significant economic growth.
(Note: TigerHawk received the above data via an investment banking pitch two weeks ago, which is why I post no link. If the information is wrong, I will naturally blame the bankers.)
[The Commerce Department's] revised estimate is sharply higher than the earlier one -- 3.3% annualised growth, instead of the 2.8% they originally predicted. In some sense it's silly to be glad, because of course, the GDP was what it was, and having the Commerce Department stick a number on it doesn't make Americans any more or better off than they actually were during the April-to-June period. But nonetheless, I'm going to let myself heave a little sigh of relief.
Apart from headline statistics tossed around by the government, there are some similarly interesting clues to recovery in high-yield debt default rates, which have declined from more than 10% two years ago and 6% a year ago to around 3% for the last six months. The "spread" between new-issue BB loans and U.S. Treasury securities of similar duration has declined from almost 400 basis points (i.e., 4%) in the fourth quarter of 2002 to a little more than 200 basis points (i.e., 2%) for the last six months. Both of these figures suggest that the credit -- or at least the liquidity -- of middle-tier American companies has improved considerably this year, which would be virtually impossible without significant economic growth.
(Note: TigerHawk received the above data via an investment banking pitch two weeks ago, which is why I post no link. If the information is wrong, I will naturally blame the bankers.)
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