Moody’s Jumps on Recession Bandwagon

Moody’s Jumps on Recession Bandwagon
by Wolf Richter • October 16, 2015


These crazy days of ours, if you want to have confirmation the economy is sliding into trouble, look at stocks: for stock-market jockeys, crummy economic data indicates that the Fed won’t raise interest rates. And stocks jump.

Maybe not jump, exactly. But the S&P 500 rose 0.9% for the week, its third weekly gain in a row, following another decline in industrial production, weak retail sales propped up by autos and restaurants, falling wholesales and business sales, rising inventories, a lackluster employment report…. The word “recession” is floating around, and when it hits, stocks might make a big new high. That’s the twisted hope.

And now Moody’s has jumped on the recession-warning bandwagon too, with a logic of its own.

[font size="3"][font color="blue"]First, there’s credit: the spigot is getting turned off.[/font][/font]

For the last three weeks, only one junk-rated company was able to issue bonds in the US. And just in the US: “This is shaping up to be the worst October for the worldwide issuance of high-yield bonds” since October 2011, wrote John Lonski, Chief Economist at Moody’s Capital Markets Research. He warns of “reduced access to financial capital.”

But unlike October 2011, when the euro debt crisis caused wild gyrations in the bond markets, which then recovered quickly, this time around, there might not be an easy recovery: average yields and spreads are still low in comparison to 2011, but the average expected default frequency (EDF) for US/Canadian junk-bond issuers, which was 3.85% in October 2011, is now a “much riskier” 5.20%. ...............(more)

http://wolfstreet.com/2015/10/16/moodys-recession-warning-jarring-drop-in-payrolls/