Reply #27: High-yield bonds not pricing default risk-analysts

[UpInArms]

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=8545455§ion=investing

LONDON, May 19 (Reuters) - Despite the recent selloff in the high-yield bond market, returns are still not high enough to compensate investors for the risk of default, analysts at Deutsche Bank warned on Thursday.

The warning came as credit ratings agency Standard & Poor's said credit risk in the European leveraged buyout market, a major source of high-yield bond supply, had deteriorated significantly in the past 18 months, with an "inevitable" rise in defaults to follow.

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"Does the recent credit spread widening make credit cheap?" they asked. "Single-B spreads still do not compensate investors for historic default probability. Thus whilst spreads are cheaper, it is difficult to say they are cheap."

The high-yield bond market has rallied sharply in the past two days after coming under intense pressure in the wake of the downgrades of U.S. automakers Ford Motor Co. (F.N: Quote, Profile, Research) and General Motors Corp. (GM.N: Quote, Profile, Research) to "junk" status.

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