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Tesla bonds blowout is a warning for risk, credit



Tesla Bonds were downgraded to B3 from B2 by Moody & # 39; s, which also changed the outlook from stable to negative, as the production rate for the company's Model 3 was significantly undercut. The 2025 Tesla bond fell 7.7 percent on Wednesday, down from 6.80 percent on Tuesday. The returns are against the price. The Tesla share fell on Wednesday by 7.7 percent.

Andrew Brenner of National Alliance said Tesla's bond is not indicative of problems for other issuers, but there is some concern over credit.

"It's a signal for other risk assets You need to be aware of the cash flows of the companies you buy," Brenner said. "While Elon Musk may take us to Mars and everywhere, he still has to come up with cash."

The widening of spreads between corporate bonds and Treasury yields is far from the fire alarm of recent years, but it's been In recent weeks, analysts have observed that the analysts have observed.

"I think it's an indication of greater risk aversion," Boockvar said.

This move is evident in LQD, the iShares 1

0+ Investment Grade Corporate ETF and HYG, the iShares iBoxx $ High Yield Corporate Bond ETF, which have been declining since early February. LQD was slightly higher on Wednesday, while HYG was lower.

"What it means is much more volatility in the corporate space." People take money off the table. "People are a little bit more when you get a risk adjusted spread for investment grade [corporate debt] at the beginning of the month, then it is 88, today it is 102. It has been extended by 14 points, "said Brenner

] On Wednesday, Treasury yields declined at the long end after seeing the Key support at 2.80 percent on Tuesday had broken. [10] [1965900] Ian Lyngen, Head of US Treasury Strategy at BMO, said the move reflects a decline in optimism and stock market volatility. But the Libor movement has been hanging around in the markets, although it is dismissed as technical.

"It's the gap between Libor and OIS that interests people, because it means there's some risk in the credit system. The divergence between Libor and the implicit Fed rate has increased dramatically," he said. "It's a lot of corporate bonds, it's the reference floating rate for everything."

Libor is the London interbank bid rate, the level at which banks lend each other.

Brenner said At the beginning of the year, the 3-month Libor was at 1.69 and has since been up by 61 basis points. "We only had one Fed rate hike, it ended at 61 and you only have an increase of 25 basis points," he said. "Companies have $ 2 trillion in Libor-based floating rate debt, which costs them money."

Analysts have said that the Libor movement, however, is not sending the alerts it did when it shot sharply during the financial crisis. They blame the Libor surge for two factors: a much higher amount of short-term debt and the fact that US companies bring their overseas cash back home, some of which were short-term securities.

"There is more competition for some of these shorter-dated issues, that was for bills or commercial paper, and demand is lower as investors who normally invest in these types of securities or papers, namely these companies, the invest their offshore earnings, do not do so far as they were, "said Jon Duensing, head of corporate credit at Amundi Smith Breeden.

"It is a decline in demand, coupled with an increase in supply, which is driving up the cost of money in short-term financing markets, and investors have seen these short-term financing markets as a sign of stress in the financial markets, and I think they could It's not that bank A does not trust the bank B, "he said.


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