Yes, a hunt for yield and investor fear is creating record inflows into junk bond ETFs. But, record low rates may be as much a result of a shortage in junk bond market supply to meet that demand.
So what does it all mean? For one, Wall Street should be worried.
Bond underwriting accounts for roughly 10% of revenue at investment banks like Goldman Sachs, and it helps to fuel for far more lucrative trading desks.
If refinancing soon runs its course after years of record-setting pace, investment banks may soon lose a key revenue stream in an already murky earnings environment. Bond issuance data may also overstate the animal spirits of corporations, providing mixed signals on a long-awaited M&A boom.
Broader stories also emerge.
C-Suites across America may not be getting the credit they deserve for repairing balance sheets in the wake of the crisis. Overall debt and debt-to-EBITDA levels across the S&P are roughly 40% below pre-bust levels, paving the way for flexibility to increase dividends or map out new growth strategies in coming years.
For instance, investment grade companies like Disney
Most important; however, is that bond yields may not be as predictable as simply following the Fed. If falling yields are, in part, a function of weak supply, then rising yields may have as much do with C-Suite aggression and general re-leveraging throughout corporate America as any change in Fed policy.