US Commercial Bankruptcies Soar (despite Rosy Scenario)…”Up 51% since September!”

Friday, June 3, 2016
By Paul Martin

by Wolf Richter
WolfStreet.com
June 3, 2016

The post-February euphoria in the US bond market has been a sight to behold, stirred up by NIRP and QE in Japan and the Eurozone. The ECB is beginning to buy corporate bonds, including euro-denominated corporate bonds issued by US companies. This is pushing larger amounts of corporate euro bonds into the negative-yield absurdity. And it has opened all kinds of credit doors in the US.

But beneath the market euphoria, reality continues to plod forward.

Standard & Poor’s reported that among the companies it rates there were 12 defaults in May, which pushed its speculative-grade corporate default rate up to 4.1%, the highest since December 2010 when it was recovering from the Financial Crisis.

In January, so just five months ago, the default rate was still 2.8%. That’s how fast credit is deteriorating.

Even during the early phase of the Financial Crisis, in September 2008, when Lehman Brothers filed for bankruptcy, and when all heck was breaking lose, the default rate was “only” 2.96%, before skyrocketing and eventually peaking at 12% in November 2009.

These are the largest US corporations, rated by Standard & Poor’s. But about 99% of the 19 million or so businesses in the US are small, generating less than $10 million a year in revenues, according to Dun & Bradstreet. None of them are rated by Standard & Poor’s, and none of them figure into its default rate. Another 0.96% or 182,578 businesses are medium-size with sales between $10 million and $1 billion. Only a smallish portion of them are rated by Standard & Poor’s, and only those figure into its default rate. The rest, the vast majority, are flying under Standard & Poor’s radar.

The Rest…HERE

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