Here’s more confirmation that the inability or unwillingness of people to lend money to one another is what’s driving the ongoing bad news in the financial markets. It is essentially twice as expensive for IBM to borrow money this year than it was last year:
IBM raised $4 billion today with the sale of 5 year, 10 year and 30 year bonds. I will relate the story of the bond in the 10 year sector.
I shall begin with the IBM bond which matures in 2017, which is one year shy of the bond that the company offered today. It is not exactly the same but we can compare. That bond traded one month ago at a spread of about 170 basis points to the 10 year Treasury. Yesterday, a salesman with whom I converse, (and friend of the blog) sold some to a customer of his at T+265 basis points.
Today when IBM offers the new 10 year bond the market forced that gilt edged untainted by the credit crisis technology company to pay T+388 basis points. It was over 120 basis points cheaper than a comparable bond traded yesterday. That is a sign to me that the credit markets are in the direst state and that funding is drying up for corporate America.
As the author points out, if it’s this difficult for IBM to sell debt, most other companies are effectively shut out of the credit market entirely.