Number of “fallen angels” has risen as rating & subsequent downgrade activity has picked up. 30% mortgage defaults coming! VIX about to explode in coming weeks again?

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Corporate bond downgrades grow. 

U.S. corporate bonds suffer negative ratings moves, while analysts say more may be coming

U.S. corporate bonds are being downgraded at breakneck speeds, highlighting the threat posed to companies’ balance sheets by the coronavirus crisis.

The pace of downgrades over the last two weeks was the fastest on record in one major corporate-bond index going back to 2002, according to BofA Global Research.

The index, known as the ICE BofAML U.S. Corporate Index, has suffered $569 billion in downgrades since March 16, said Bank of America.

Credit-ratings firms downgraded a net $560 billion of investment-grade corporate bonds in the index last month, the bank added. While total downgrades remained lower than at the same point during the financial crisis, the pace accelerated in recent weeks as ratings firms and investors reassessed the ability of borrowers to repay their debts.

30% Mortgage Defaults? They’re Coming

TLDR: Remember the mortgage default crisis of the Great Recession with fondly? No? Well you soon will refer to that bloody mess as “the good old days”.

Mortgage lenders are preparing for the biggest wave of delinquencies in history. If the plan to buy time works, they may avert an even worse crisis: Mass foreclosures and mortgage market mayhem.

Borrowers who lost income from the coronavirus — already a skyrocketing number, with a record 10 million new jobless claims — can ask to skip payments for as many as 180 days at a time on federally backed mortgages, and avoid penalties and a hit to their credit scores. But it’s not a payment holiday. Eventually, they’ll have to make it all up.

As many as 30% of Americans with home loans – about 15 million households –- could stop paying if the U.S. economy remains closed through the summer or beyond, according to an estimate by Mark Zandi, chief economist for Moody’s Analytics.

“This is an unprecedented event,” said Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania. “The great financial crisis happened over a number of years. This is happening in a matter of months — a matter of weeks.”

Meanwhile, lenders are operating in the dark, with no way of predicting the scope or duration of the pandemic or the damage it will wreak on the economy. If the virus recedes soon and the economy roars back to life, then the plan will help borrowers get back on track quickly. The greater the fallout, the harder and more expensive it will be to stave off repossessions.

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