Credit Matters

Corporate bonds are taking pride of place in European companies’ funding plans — providing a long-term boost to the job prospects of credit analysts such as Gary Jenkins. But sales made direct to the public mean that the outlook for the market is not quite as smooth as all that.

Cycles of boom and bust are a natural, ineradicable feature of the markets — just as the psyche of a credit analyst demands a villain on which to blame its troubles. When it comes to this financial crisis, Gary Jenkins knows who the real culprit is.

Where does a credit analyst keep his own cash? Under the mattress is too risky for Gary Jenkins, but with governments and bank lenders providing a supporting act to troubled companies, corporate bonds might be centre-stage in his portfolio.

Pension fund surpluses are plunging into deficits, firms are being pushed over the edge by commitments and demographics are set to make things worse. It’s enough to make Gary Jenkins give up his retirement plans.

First, the bad news: if government stimulus measures work, then bond yields are too low. But Gary Jenkins also has some good news: while the UK is fair game for the raters, the US is a whole different kettle of fee structure.

There’s an air of the surreal in the markets, as pundits, rating agencies, and even humble credit researchers attempt to describe the shape of economic recovery. But Gary Jenkins, the analyst who’s never out of shape, has seen the future and can describe exactly what will happen. Of course.

Rallying equities notwithstanding, the value pendulum has swung back to bondholders and away from shareholders. Gary Jenkins, a man as much at home on Sesame Street as Wall Street, explains why.

Is it down to the lake I fear? Yes, you can’t knock Haircut 100 (though you can easily misquote them). Sometimes I find myself day dreaming about all manner of things; the chances of the British Lions in South Africa, my collection of pencil sharpeners, classic bits of research (many of which are now available to view on YouTube) and of course where exactly this market is going and what the key risks are over the coming years.

Chrysler has filed for bankruptcy protection, GM is not far behind and Ford is teetering. The speed with which the firms plunged down the rating scales, even before they encountered economic headwinds, is exercising Gary Jenkins, EuroWeek’s columnist who likes to walk, not drive.

It all kicked off on the Eurostar to Disneyland Paris.* I had decided to take the latest copy of EuroWeek with me for some light reading on the train (and also thought it might be useful to give the kids to read if they started misbehaving) when my wife happened to pick it up.

Corporate bonds are the asset class of choice, but for how much longer? In most cycles, the cult of equity re-establishes itself and the credit market goes back into the darkness from whence it came, writes Gary Jenkins. Will this time be any different?

You never forget your first time do you? I remember mine. I was young and foolish and the whole world seemed like one big opportunity just waiting for me to come along and grab it. It all went very quickly and I probably did not do a very good job. I was over excited. Later on, I learnt the proper technique of working from back to front and then front to back again.