Friday, August 5, 2011

Growth with fluctuations

According to Thomson Reuters, the market for corporate bonds grew only in the first half of the year in Europe at around € 120 billion. That's almost ten percent more than in the first half of 2010. Analysts speak of a demand overhang that should continue. At least until 2012.
However, it is towards often very volatile. To larger declines in the market occurs, for example, whenever the high uncertainty about the extent of the crisis grows. Thus in June, companies outside the financial sector in Europe, issued bonds with a volume of 10.5 billion euros. A decline of about 63 percent compared to the previous month.
Similarly, the drop was lost in April this year, as the situation in Greece came to a head before. Even as the business with new companies and bank loans for a short time had almost come to a standstill. Unlikely that the Parliament in Athens, however, had put together a package of austerity, calmed the financial markets again.
Greater risks in corporate bonds, very few investors realize it or do not even see. These are most of these bonds, especially medium-sized papers, actually junk. Companies like Katjes Valensina or have a rating below BBB. In 1999 resulting from a silo supplier for the wind energy sector, industry professionals SIAG AG, even only CCC +, only slightly better than the soon to be bankrupt Greece.
Negatively evaluated the analyst from Standard & Poor's (S & P) at SIAG especially highly leveraged and use a vulnerable business model. The demand is cyclically weak profitability in part, the ratio of adjusted debt to operating profit will end the year expected to be between 5 and 6 and in 2012 drop to below 5.
What many investors have yet convinced of the five-year bond, was disdainful of Mammon, the high coupon of 9 percent. But this bait has "aftertaste". For there is a reason why the interest rates of almost all companies in the single digits, regardless of the rating or the Company's industry. Psychologists will have found that double-digit returns investors usually arouse suspicion. And accordingly provides no more than medium-nine percent of these.
After all, SIAG but has made a tough rating. That would give the company did not have to accept it. Often the ratings are not of S & P or other sizes in the industry, but by Creditreform or Hermes. It is usually assessed once the bond, but the company exclusively. But this makes little sense, because the bond is far less certain.

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