Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Bernanke's Nonexistent Junk Bond Revival: Street Whispers

By
PrintPRINT
If junk bond market records are mostly a result of refinancing efforts, then simply looking at 2012 issuance numbers overstates the actual supply of debt available for bond investors to buy. It also gives way to an alternate explanation for record low rates, while giving Ben Bernanke some credit for Wizard of Oz-like monetary policy.

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.

Related Links

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 (NYSE:DIS) and Costco (NASDAQ:COST) have recently returned to bond markets to finance large dividend increases. Meanwhile, Amazon (NASDAQ:AMZN) recently tapped bond markets for the first time in a decade, as the company ratchets up its competition against retailers Wal-Mart (NYSE:WMT) and tech giants Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).

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.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE