Soaring junk forces Morgan merger

Joanne Hart12 April 2012

JP MORGAN is merging its high yield and investment grade bond desks because so much company debt has been reduced to sub-investment or junk status.

This year, corporate debt worth £35bn has been reduced to junk or is trading as if it were. Former top names such as Marconi, Railtrack and Swissair have sunk into the high-yield market, becoming known in the trade as 'fallen angels'. Other businesses such as British Airways are expected to become junk soon.

The rapid decline of these household names has spooked investors, prompting a wave of selling and sending the yields of investment-grade businesses, including Rolls-Royce, Invensys and Corus, soaring to junk levels.

'Traditionally, different skill sets were needed to trade investment grade and high-yield debt. We believe this is no longer the case,' Tim Frost of JP Morgan said. 'We are the first to do this but we do not expect to be the last.'

Many companies have moved further down the credit register, from junk to distressed. Credit rating agency Standard & Poor's predicts that firms will default on about £70bn of debt this year, more than double last year's figure.

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