Many banks and companies are paying more to raise money in the bond markets than at any time since the recession in the early 1990s amid signs that the financial crisis is deepening.Spreads for US investment grade banks and companies rose to the highest level last week since the early 1990s, according to Lehman Brothers. Spreads measure the extra interest a company must pay above safe government bonds. This is known as the risk premium.One of the biggest concerns is the health of Fannie Mae and Freddie Mac, the US government-sponsored enterprises that have run into trouble because of the US mortgage crisis. The mortgage financiers, which underpin the US housing market, paid the price for these worries when both were forced to pay record high risk premiums on dollar-denominated bonds this month.Other issuers forced to pay very high yields over government bonds this month include Citigroup, American Express, AIG and Deutsche Telekom. Jim Reid, a credit strategist at Deutsche Bank, said: "I think it is fair to say the crisis is deepening because people are very worried about the health of some financial institutions. Will more fail? The fact is if you mark to market some of the illiquid assets the banks hold at prices they could sell them in today's climate, it could make many of them insolvent."
Spreads for US investment grade banks and companies rose to the highest level last week since the early 1990s, according to Lehman Brothers. Spreads measure the extra interest a company must pay above safe government bonds. This is known as the risk premium.
One of the biggest concerns is the health of Fannie Mae and Freddie Mac, the US government-sponsored enterprises that have run into trouble because of the US mortgage crisis. The mortgage financiers, which underpin the US housing market, paid the price for these worries when both were forced to pay record high risk premiums on dollar-denominated bonds this month.
Other issuers forced to pay very high yields over government bonds this month include Citigroup, American Express, AIG and Deutsche Telekom.
Jim Reid, a credit strategist at Deutsche Bank, said: "I think it is fair to say the crisis is deepening because people are very worried about the health of some financial institutions. Will more fail? The fact is if you mark to market some of the illiquid assets the banks hold at prices they could sell them in today's climate, it could make many of them insolvent."
In a replay of the last four months of 2007, interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens. Binit Patel, an economist in London at Goldman Sachs Group Inc., said in an Aug. 21 report that nations accounting for half of the world's economy face a recession. The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000. ``These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,'' Thomson said, citing a figure of $88 billion. ``The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn't any.''
The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000.
``These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,'' Thomson said, citing a figure of $88 billion. ``The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn't any.''
