Corporate Bonds

July 30th, 2009 3:07 pm | by John Jansen |

Corporate bonds are screaming tighter today. Across the board, paper is 10 basis points to 20 basis points tighter. Salespersons report that if you hold quality paper and you show an offering ,then you are likely to get lifted.

One salesman noted that over the past two days GE paper and GS paper has each tightened by about 35 basis points.

One portfolio manager and friend of the blog notes that the Federal Reserve with its chunky buying of MBS paper and GSE debt has left quality corporate names as the only game in town.  The narrowness of those spreads has forced many buyers into the corporate arena and there is too much money chasing a few bonds.

Another salesman suggested that A rated and better paper might see only incremental improvement going forward but the quest for yield would drive investors down the credit curve to still yieldy BBB names.

If this price action were to continue I wonder if it might make the Federal Reserve quicker to implement “exit strategies”. I do not wish to overstate the case but one could argue that we are in the very early stages of a new bubble.

I am not sure how policymakers address that if the unemployment rate is 10 percent. Raising rates would hasten Mr Bernanke’s trip back to academia and might spook the markets if the Administration appoints an even more pliant fellow to the post.

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  1. 4 Responses to “Corporate Bonds”

  2. By Kevin Mackey on Jul 30, 2009 | Reply

    Given how our political system tends to be late in their moves, I wouldn’t think their initial “exit strategies” would be as explicit as interest rate hikes. The winding down of the commercial paper facility has gone smoothly and quietly; maybe they will just continue quietly closing the less-noticed facilities?

  3. By BL on Jul 30, 2009 | Reply

    Doesn’t have to be quality, it seems. The junk bond ETFs are up with the equities market, and I expect the underlying NAV will be too.


  4. By Chicken on Jul 30, 2009 | Reply

    Markets might “misinterpret” a slight FED increase as a positive (recovery) signal? I’m not attempting to say this will come any time soon but I can perhaps believe the psychology involved….

    Exactly who’s buying all that Treasury paper?

  5. By Shrek on Jul 30, 2009 | Reply

    this country is like the matrix.

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