(Bloomberg) — The rapid failure of a Silicon Valley bank is threatening to halt a rebound in credit markets that was drawing investors back some of the riskiest corporate borrowers.
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With phones ringing nonstop on credit trading desks on Friday as traders and money managers tried to gauge the potential fallout from the collapse of the biggest US bank in more than a decade, investors around the world flocked to derivatives markets, which Used to offer a hedge against losses, trading data show.
A credit-default swap index linked to the debt of European financial institutions recorded trading volumes that were three times higher than a normal Friday level, data compiled by Bloomberg show.
Extra premium investors have seen the biggest increase since last June in their demand for owning bonds from US junk-rated companies instead of investment-grade debt, according to Bloomberg Index data. Meanwhile, prices in the resurgent US leveraged debt market fell the most since October, the Morningstar LSTA index showed.
Whether the rush for the security continues on Monday may now depend on US regulators finding a buyer or buyers for the seized SVBs. But one thing is certain: The situation has exposed the hidden risks in the financial system following the rapid rate hike by the Federal Reserve.
As Schroders’ David Knutson told Bloomberg’s Caleb Matua in an interview on Friday, this is “just the first inning.”
“We have made a regime change in cost and now these business schemes are failing and their middlemen are struggling,” he said.
Debt talks with China’s defaulting builders are heating up as terms of a more early-stage restructuring deal are revealed. Logan Group Co., one of the developers, which last year saw its dollar notes at about 10 cents a dollar off face value, asked investors to exchange $3.4 billion of its bonds for newly issued notes over seven years. – asking to provide.
Some creditors of developers’ defaulted offshore bonds turned to mainland authorities for help, adding to the challenges facing global investors. Zinc Properties Group, the legal advisor to the ad-hoc group of debt holders of the company, sent a letter, requesting it to “monitor the repayment of offshore notes” amid the lack of response from the company.
Lisa Lee and Carmen Arroyo wrote that hedge funds that had bought leveraged loans before markets plummeted last year were planning to bundle them into CLOs, covering their losses by dumping the assets and shifting the money into more profitable bets. wanted to cut. The loans in question were purchased using short-term credit lines known as warehouses. Funds that had earlier agreed to take losses on loans are now liquidating warehouses and selling off the loans.
JPMorgan Chase & Co. wants to make sure it has a seat at the table regardless of who wins the battle between Wall Street banks and private credit lenders for a potential acquisition of Carlyle’s stake in health care technology firm Cotivity. Provides multibillion financing. The bank is pitching to lead a traditional public debt deal and take a slice of the $5.5 billion debt that private credit firms have proposed to organize instead.
– With assistance from Dorothy Ma, Josiana Joshua, Lisa Lee, Carmen Arroyo and Caleb Matua.
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