Global Credit Markets Won't Recover Until 2009, BlackRock Says

By Aaron Pan

Oct. 16 (Bloomberg) -- Global credit markets won't be fixed ``overnight'' and will only start to recover in the middle of next year, according to asset manager BlackRock Inc., which said investors should remain cautious.

The effects of measures taken by central banks and governments around the world to stem the global financial crisis will take time to materialize, and the prospects for the overall world economy remain ``troubled,'' said New York-based BlackRock, which oversees $1.4 trillion in assets.

``We do not believe that the passage of the U.S. Troubled Asset Relief Program and the recent central bank moves will be a panacea that will fix the global economy,'' Robert Doll, chief investment officer of global equities, and Peter Fisher, managing director and co-head of fixed income, said in a note to clients. ``Credit markets will not be fixed overnight.''

The U.S. Federal Reserve has cut interest rates and offered short-term financing to end the seizure in credit markets, while Congress passed a $700 billion bailout this month. The European Central Bank and the Bank of England have introduced similar measures to inject cash into money markets and guarantee bank deposits.

``The steps taken by central banks are important and should eventually help stabilize the banking industry and will allow banks to remove some bad debt from their balance sheets,'' Doll and Fisher wrote. ``Eventually, we believe that we will see real evidence that credit markets are starting to recover, but this is likely to be a mid-2009 event.''

In the current environment, BlackRock sees ``value'' in non- agency mortgages and in high-yield bonds at selected companies. Ginnie Mae, Fannie Mae and Freddie Mac securities offer the ``best value available'' for investors because they are backed by the U.S. government, Doll and Fisher said in the note.

``Credit spreads have widened significantly,'' Doll and Fisher said. ``This suggests that there is value to be found in some higher-yield securities. Some of the best opportunities available to investors across any asset class can be found in the credit markets.''

To contact the reporter for this story: Aaron Pan in Hong Kong at Apan8@bloomberg.net