Also following on from “Betting The Other Way”, we continue to see a re-pricing of risk on debt. Note the following text from Bloomberg relating to corporate bond spreads:

“The risk of owning U.S. and European corporate bonds rose the most in 18 months on concern rising mortgage defaults in the U.S. and a slump in Chinese stocks will hurt creditworthiness, according to credit-default swap traders…The iTraxx Crossover Index of 45 European companies jumped 21,000 euros to 201,500 euros at 4:30 p.m. in London, according to Deutsche Bank AG. The index has increased from a record low of 169,000 euros on Feb. 22. The U.S. CDX index surged the most in seven months.”

“The Crossover Index has turned into a gauge of fear,” said Peter Duenas-Brckovitch, head of credit trading at Lehman Brothers Holdings Inc. in London. “Concerns about sub-prime mortgages and a slump in China stocks have fueled the fear, which until a few weeks ago didn’t seem to exist.”

Watch out for hedge fund vulnerability over the coming weeks.

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