If the banks don’t start dispersing the government’s cash, businesses will face a difficult task when they look to finance new projects.
AP: The recent decline in bank-to-bank lending rates is having no effect on corporate bonds, which continue to plunge in value — a sign that the market believes more loan defaults and a wave of bankruptcies are ahead for U.S. companies.
The market rates on corporate bonds have been rising, compared to Treasury yields, for nine straight days, said John Atkins, a fixed-income analyst at IDEAGlobal.com. This trend is happening for both investment grade bonds and non-investment grade, or junk, bonds, but has been hitting junk bonds harder.
About half of rated U.S. companies are noninvestment grade, according to Standard & Poor’s.
Junk bonds simply aren’t being issued right now, but their rates in the market for existing bonds determine how much companies would have to pay if they needed to issue them to raise cash. If these rates keep rising, the cost of financing through the corporate bond market will become cost-prohibitive for many companies — compounding the problems that the economy is dealing them.
The bond default rate for junk bonds rose to 2.86 per cent by the end of September from 0.97 per cent at the end of 2007, S&P said. Many analysts predict that percentage rate will reach double digits next year.
See Also: White House to Banks: Start Lending!
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.