US credit quality in 25-year retreat toward junk-S&P

Reuters reports:

U.S. corporate credit quality has been on a 25-year decline toward junk status, with almost half of all companies now rated below investment grade, Standard & Poor's said on Thursday.

Liquid financial markets, downgrades in the auto and airline sectors, a spate of takeovers and global competition have contributed to the credit quality erosion, the rating agency said in two reports.

"An aggressive financial posture is necessary for survival in a stiff globally competitive environment," S&P said. "The same dynamics are unfolding in Europe, albeit at a slower pace."

As of September, junk, or speculative-rated issuers, defined as those rated "BB-plus" or below, stood at a record high of 49 percent, up from 48 percent at the end of 2005 and a low of 28 percent in 1992, S&P said.

Downgrades and mergers have taken an even higher toll on U.S. nonfinancial, or industrial companies, with 61 percent carrying junk ratings.

You've got to wonder how many municipalities really deserve a junk bond rating considering their pension obligations.Holding all variables equal: interest rates have to go up in real terms to compensate the risk.