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Credit markets 101: Finding the value

The difficult analysis of the credit markets is exactly that: analysis.

In the equity markets, when a company encounters difficult times, it tends to be isolated and somewhat unique to that company. The issues can be quantified and analysis will quickly give the investors the snapshot of the current value the company will have in the market place.

Stocks are simpler in that respect. Pertinent data is somewhat easily put into categories like price to earnings ratios, price-earnings to growth ratios, cash flow yield, gross profit margins and, of course, the ultimate measuring stick -- operating margins. A publicly traded company will endorse a set of expectations for an ensuing quarter and in most cases, the whole year.

The fixed-income credit markets are a different story. The movement of bond prices is quite often a vote of confidence -- or lack of confidence. The massive credit market runs the gamut of fully secured United States Treasury paper to junk bonds. The credit-worthiness of a bond is judged and given a rating score by a third party, normally Moody's or Standard and Poor's.

Continue reading Credit markets 101: Finding the value

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Last updated: May 27, 2012: 08:41 PM

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