Corporate Borrowing Costs Surge to Record in Europe on Depression Concern

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Corporate Borrowing Costs Surge to Record on Depression Scare
By Abigail Moses, John Glover and Shelley Smith


March 6 (Bloomberg) -- Corporate borrowing costs surged to a record in Europe on concern the credit crisis will deepen into a global depression.

Investors are demanding the highest yields relative to government debt to buy European investment-grade corporate bonds. The spread widened 20 basis points to 442 basis points this week, beating the previous record of 438 basis points on Dec. 26, according to Merrill Lynch & Co. data.

“Investors are scared that a 1930s style depression is no longer a mere tail-end risk,” said Georg Grodzki, head of credit research at Legal & General Group Plc, which manages more than 110 billion pounds ($156 billion) of assets. “It is easy to see why even some real-money investors are running for the exit because of waning confidence in the effectiveness of the measures being taken.”

Governments from the U.S. to Australia have sought to introduce policies to bolster their economies as a deepening global recession sent stocks in the MSCI World Index to a 24 percent plunge this year, the worst start to a year since the gauge was created in 1970. A Labor Department report today may show employers in the world’s largest economy cut payrolls by 650,000 and the unemployment rate surged to a 25-year high of 7.9 percent, according to a Bloomberg News survey.

The cost of protecting bonds sold by European banks and insurers from default surged to records on concern they will have to add to the almost $1.2 trillion of losses and writedowns financial companies worldwide have taken since the start of the credit crisis. ........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=ayk2wBprl.Vw&refer=home