Widening Credit Spreads Signal More Carnage To Come

Credit spreads have widened to their highest level in almost two decades as bond traders recoil from elevated levels of debt and default risk. Banks credit standards continue to tighten, and the cost of raising debt is approaching the peak levels set in 2007. (Bloomberg)

The elevated risk premium suggests the debt markets are concluding that the crisis isn’t over. As it becomes increasingly expensive to raise debt, moreover, the capital positions of some of the big lenders become even more precarious just as their losses on non-performing loans spike.

Fannie (FNM) and Freddie (FRE) are toast.  WaMu and Lehman (LEH) are reeling.  The question is whether the next leg of the crisis will claim another firm that is not currently perceived to be on the ropes.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.