Its All About The Bps, No Credit…

To paraphrase the philosopher Meghan Trainor:” Its all about the bps, bout the bps, bout the bps no credit”.  In a world where the extra basis point, positive or negative (believe it or not) is pushing capital flows irrespective of the credit quality or credit worthiness attached to that incremental yield, or in some cases decremental yield. Italy, Greece, and now a number of, what previously were termed high yield, junk credits  are drifting into single digit or negative territories. In a pre-Centrally planned rate environment, credit quality drove spread movement, however in this brave new world, spread movement drives credit analysis or the lack thereof. As Mark Twain was reported to have said ” History may not repeat itself but it often rhymes”  and this market is humming some pretty familiar tunes. The reach for decremental yield, without any regard for creditworthiness is a sign of something very wrong with the global capital markets and is not simply indicative of a response to slowing global growth.