No room for error in the bond market - First Brands carryover

 

There is no room for error in the corporate bond market. Look at the spreads: the market is pricing in very little corporate debt risk. 

That tightness may be changing with the First Brands failure. Most corporate debt does not present the problems associated with First Brands, but we now have an environment where every credit manager is conducting a full review of their portfolio. Go back to basics, as there's FOMO around credit. 

The FOMO of a credit event. You want to be the investor who avoids risk, so it is time to start reducing risk exposure, especially in the high-yield space. If there is a credit problem with First Brands, there is likely to be problems somewhere else. There will be specific credit risks for firms that may have to rollover debt in the next year. Short-term debt should be less risky, except when there is a near-term credit problem or a threat of new funds not being available. If bank lines are cut, some firms will have less funding in the short run.