Bloomberg News

Morgan Stanley Says Risk Premiums Too Elevated for Global Credit

September 06, 2011

Sept. 6 (Bloomberg) -- The increase in pricing of corporate credit is unjustified even by “lower growth expectations and higher recession risks,” according to Morgan Stanley.

“Although a U.S. recession or Eurozone sovereign shocks are risks, we think risk premiums are too elevated and unlike ‘normal’ cycles we have not seen a deterioration in balance sheet quality,” analysts Viktor Hjort, Kelvin Pang and Nishant Sood wrote in a report today. “We are constructive on global credit,” the analysts wrote.

The cost to protect U.S. company debt jumped today on concern that the European debt crisis is worsening. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 9.6 basis points from Sept. 2 to a mid- price of 129.6 as of 8:06 a.m. in New York, according to index administrator Markit Group Ltd. That’s the biggest increase since Aug. 8.

The credit swaps index, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from 96.3 since the end of July.

To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net

To contact the editor responsible for this story: Pierre Paulden at ppaulden@bloomberg.net


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