Analysts at Sutton Capital told clients and shareholders this week that the worst was now over in terms of the global crisis, and that Asian countries which managed to maintain stability in their banking systems have decent prospects as the recovery continues to gather steam.
The difference between yields on financial company bonds in Asia and benchmark government securities widened to desirable levels because of the financial crisis, Sutton Capital analysts wrote. In the U.S. and Europe, the potential for credit spreads to narrow is limited, according to the report.
The extra yield investors demand to hold Asian financial company bonds rather than government securities stands at 512 basis points, down from 1,065 points on Dec. 12, according to Sutton Capital data. The spread is averaging 356 basis points in the U.S. and 271 basis points in Europe this year. A basis point is 0.01 percentage points.
One Sutton Capital source claimed that throughout the first half of this year, Sutton Capital have been active in bonds and securities of issuers whose credit qualities, in their opinion, remained high and stable - even as the sovereign risk premium widened.
Still, Sutton Capital were at pains to caveat the recommendation, stressing that investors should make rigorous and prudent bond selection since, though Asia financial bond spreads have narrowed since April there is the small chance that the market may reverse.
The crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.61 trillion of writedowns and credit losses at financial institutions and sent the global economy into its first recession since World War II, according to Sutton Capital data.
