Credit analyst Willem Sels at DKIB has put together an A2/P2 vs A1/P1 chart using data from the Fed:
The chart is a nice measure of what Sels calls the “haves” and the “have nots” of the CP world. The higher-rated A1/P1 paper benefits from access to the host of government interventionary measures being offered in the short-term funding markets right now. A2/P2 rated paper does not, and so yields at a significant risk premium – one still very much in catastrophe territory.
It’s ironic really. The companies that actually need liquidity support most, can’t access it. And if the rating agencies are actually doing their jobs, and downgrading corporates before they actually default, then the sudden spike in short-term funding costs that results might, ironically, actually be the thing that kills many firms.
The FT reports on another unintended consequence of government support to bank debt today: guaranteeing bond issuance is killing off securitisation. Issuing asset-backed bonds costs more than issuing regular debt.
For example, in October there has been no issuance of bonds backed by credit card loans in the US or Europe, according to data from Dealogic. Until recently, activity in this type of asset-backed security had held up reasonably well.
No securitisation, no recovery in underlying asset class prices. It makes the UK government’s demand that banks continue to lend “at 2007 levels” all the more ridiculous. Roll on more debt deflation.