Wednesday, September 12, 2007
Credit markets, continued
From the National Association of Homebuilders
This year’s financial market turmoil is based heavily on deep credit problems in the U.S. subprime mortgage market, and large losses are being taken on mortgage-related securities around the globe.
These experiences have reminded the investment community of credit risks in other parts of the financial markets, kicking off a broad-based flight to quality.
Some credit markets have virtually shut down in the process — the asset-backed commercial paper market is a good example — and quality spreads have opened up in most markets, including the corporate bond market.
Fortunately, the flight to quality also has driven down the entire Treasury yield curve. This has kept rates on things like prime conventional conforming mortgages and high-grade corporate bonds close to levels prevailing before the most recent round of turmoil, despite considerable widening of spreads to comparable maturity Treasuries.
But most other rates have risen in absolute terms — including rates on subprime, Alt-A and jumbo mortgages as well as rates on lower-rated corporates.
These changes definitely are cutting into housing market activity and overall economic growth.
This year’s financial market turmoil is based heavily on deep credit problems in the U.S. subprime mortgage market, and large losses are being taken on mortgage-related securities around the globe.
These experiences have reminded the investment community of credit risks in other parts of the financial markets, kicking off a broad-based flight to quality.
Some credit markets have virtually shut down in the process — the asset-backed commercial paper market is a good example — and quality spreads have opened up in most markets, including the corporate bond market.
Fortunately, the flight to quality also has driven down the entire Treasury yield curve. This has kept rates on things like prime conventional conforming mortgages and high-grade corporate bonds close to levels prevailing before the most recent round of turmoil, despite considerable widening of spreads to comparable maturity Treasuries.
But most other rates have risen in absolute terms — including rates on subprime, Alt-A and jumbo mortgages as well as rates on lower-rated corporates.
These changes definitely are cutting into housing market activity and overall economic growth.
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