CreditSights: Guardedly Optimistic About U.S. Loan Market

by: Research Recap July 04, 2008 | about stocks: DIA / IYF / SPY / XLF    

Research Recap

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CreditSights remains guardedly optimistic about the US loan market for the second half of the year and still believes that the market most likely bottomed out in February.

In its second half 2008 outlook, CreditSights says the crux of maintaining a constructive view on the direction of loan prices in the face of new developments and the recent price move down is:

  1. snapshot.gifthat the technical pressure is moving is a favorable direction;
  2. that there will come a point in the second half of the year when loan prices will be based more on fundamental views than technical pressures; and
  3. that the change in the technicals will be more pronounced than the change in the fundamentals.

We remain constructive on loan prices and hold that the total risk premium is likely to decline in the second half of the year - knowing that slackening economic conditions make this a more risky trade.

Defaults will continue to rise from the current low levels but the big default worry era remains when refinancing needs hit hard in 2012-2014, CreditSights says. “Making money in loans in the second half of 2008 is a play between the degree to which the fundamental risk premium expands versus the degree to which the technical premiums contract, if not shift to an outright positive.”

The full CreditSights report US Loan Market 2H08 Outlook: Sticking To Our Guns is available for purchase.

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This article has 5 comments:

  •  
    Jul 05 10:03 AM
    I am very happy about the articles of seeking Alpha.

    Michel Clerin

    +32+497+465223
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  •  
    Jul 05 02:49 PM
    Until the egregious greed of bankers and lending institutions is restrained, the housing market will continue to fall, credit card defaults will continue to soar, and the economy will continue to stagnate.

    The current practice of gouging the consumer with 6%+ mortgage rates on 30 year mortgages and 12% and much higher interest on credit cards will drive the credit worthy from the market place. Bankers and finance companies will continue to be saddled with bad and non-performing loans as those who can service mortgages and credit card debt will sit on the sidelines.

    The banking industry will never learn that gouging coupled with easy credit is a path to disaster. But then, bankers have never been known for their intelligence nor have they ever learned to control their greed.

    Optimistic predictions are no substitute for common sense and reputable business practices.
    Reply | Link to Comment
  •  
    Jul 05 09:00 PM
    I think you are way to early. Spreads are widening again. Wages are rising to take on more debt. I think the credit crisis has another year to play out. That is why I'm short.
    Reply | Link to Comment
  •  
    Jul 05 09:31 PM
    The housing industries is suffering from negative press and bank's high interest rates. Further, the banks are playing games with selling a dwelling short but not honoring the asking price; they postpone closing and letting the contract run out and the potential buyer, who had placed a bit in at asking price is forced to go look other places. I have seen it happening.
    Reply | Link to Comment
  •  
    Jul 06 06:58 AM
    Yields were so compressed in pre-panic times that most loans have been yielding negative returns for quite some time. Today's spreads merely reflect adjusted risk premiums and there is no added premium for inflation. Whoever has bought loans pre-2008 will be deep out of money if they hold to maturity.
    Reply | Link to Comment
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