US corporate bonds sold off on Wednesday and the cost of protecting debt against default rose to a record high as worries about a recession spooked the credit markets. The main index of investment-grade credit default swaps widened to a record 102.5 basis points, out 6 basis points on the day, according to data from Phoenix Partners Group.
In the cash market, corporate bonds were weaker across the board, with spreads on even some high-quality names five basis points wider and many bond spreads out 15 basis points, a trader said.
In the high-yield market, even the safe-haven gaming sector was down, along with other "steady-Eddie" bonds that typically do not move much, said Christopher Munck, high-yield trader at B. Riley & Co in Los Angeles. "The market has been really hit hard," Munck said. With buyers on strike, any investors that need to raise cash are having to sell better-quality bonds because there's no demand for weaker credits, he said.
"The Countrywide rumours did not help the situation," Munck said, referring to rumors of a possible bankruptcy at Countrywide Financial Corp that rattled the markets on Tuesday. Countrywide, the largest US mortgage lender, rejected speculation it was planning to file for bankruptcy protection, but its bonds continued to fall on Wednesday.