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Credit risk fluctuation might have led to caution

Feb 20, 2013 Walt Wojciechowski

Credit risk management has been among the most complex issues facing businesses and investors in the years following the economic recession, and has become even more challenging as the nation's financial situation rebounds slowly. Businesses need to ensure they are using best practices to make the most profitable and sound decisions regarding purchases, sales and other deals, as the economic landscape remains turbulent at best.

CNBC recently reported that companies in the United States might be starting to lose their long-held desire for risky accounts, largely signified by increased demand for high-yield debts and improving stocks. According to the news provider, the iShares High Yield Corporate Bond ETF (HYG) and SPDR S&P 500 exchanged-traded fund (SPY) have been diverging significantly in the first several weeks of trading this year.

The source explained that the SPY has improved by roughly 6 percent so far in 2013, while the HYG has turned negative and appears to be steadily dropping. The correlation between these two economic indicators has long been studied as a way of measuring the behaviors of major enterprises and investors, while it reached its lowest level since the financial fallout in 2008.

CNBC purported that the divergence between the two markets, which seems to be intensifying as the days go on, might signify that enterprises and investors are becoming more cautious regarding the road ahead. Finally, the news provider added that while most companies have been reluctant to take on risky accounts, some are viewing this time as most opportune for such purchases and deals.

Businesses of all sizes should always ensure their risk management processes are tight and up-to-date regarding the current financial situations in the country. Any investor or company that does not feel entirely confident should consider using a firm that specializes in credit risk management.