Junk Bond Default Rate Falls in Feb. From 11-Year High
A key measure of the default rate on corporate junk bonds fell in February from an 11-year high in January, and probably will head lower as the U.S. economy improves, credit-rating firm Moody’s Investors Service said Wednesday.
The news may attract more investors to junk securities, which have rallied sharply recently.
Through February, the 12-month default rate for junk bonds worldwide fell to 10.54% of bonds outstanding from 10.68% in January, Moody’s said. Junk bonds are securities rated below investment grade.
An average of 21 companies and $9 billion in bonds defaulted each month last year as the recession left many heavily indebted firms unable to service their debts.
“You would need a severe economic downturn for those numbers to persist, and the economy instead looks like it’s turning around,” said David Hamilton, Moody’s director of default research in New York.
As investors sense that the risk of junk bond defaults is declining, money has poured into the sector in recent weeks in an effort to lock in still-high yields. A yield index of 100 junk bonds tracked by KDP Investment Advisors stood at 10.34% on Wednesday, down from 11.29% on Feb. 22.
Reuters, Times Staff Reports
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Fannie Mae to Disclose Insider Transactions
Executives at mortgage finance giant Fannie Mae will begin posting their personal stock transactions in Fannie shares on the company’s Web site within days of the trade dates.
Fannie Mae Chief Executive Franklin Raines said Wednesday that the company decided to follow the recommendations made recently by Securities and Exchange Commission Chairman Harvey L. Pitt regarding insider disclosure in the aftermath of Enron Corp.’s collapse.
Congress is considering mandating speedy executive stock transaction disclosure but has not yet acted. Depending on when they buy or sell, executives’ trades may not become public information for up to 40 days after a trade.
Fannie Mae has been under fire in Congress for disclosure issues unrelated to insider transactions. Because the company is congressionally chartered, it does not have to file with the SEC its plans to raise capital in stock or debt markets with new securities.
Some in Congress have expressed concerns about debt levels at Fannie Mae and its sister mortgage company, Freddie Mac. House Republicans such as Reps. Christopher Shays of Connecticut and Richard H. Baker of Louisiana are considering legislation to remove the companies’ exemption from SEC registration requirements.
Fannie Mae shares fell 96 cents to $79.04 and Freddie Mac lost $1.20 to $63.40, both on the New York Stock Exchange.
Reuters, Bloomberg News
