Wide Spread Trouble for Debt Markets

In 2001's first half, credit spreads will remain wide for investment-grade issues -- and will worsen in the junk market

Credit quality and liquidity concerns, coupled with increasing defaults, wreaked havoc on the U.S. corporate bond market in the fourth quarter, and both investment-grade and speculative-grade credit spreads widened significantly, Standard & Poor's said on Jan. 2. "Looking ahead to 2001, despite a widely anticipated Fed rate cut early in the year, investment-grade spreads will remain at wider levels in the first half of the year," said Diane Vazza, managing director and head of global fixed income research for the rating agency. "With more defaults on the way, speculative grade spreads will widen further before they firm in the first half of the year."

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