May 15, 2008
In an article symbolic of the media’s attempts to keep finding the dark side of any news, an article heralding the fall of junk bonds below the symbolically important 8% rate gets the ominous title: “Is Debt Thaw on Borrowed Time?”. Read the article, though and you find:
Meanwhile, the additional interest that most junk bonds pay over Treasury bonds has fallen by nearly two percentage points since mid-March to around 6.8 percentage points, according to Merrill Lynch data.
And a handful of firms, including power company AES Corp. this week, recently issued junk bonds with interest rates below the key threshold of 8%, the first time that happened in many months.
There are some encouraging signs regarding the leveraged-buyout overhang. The pipeline of unsold leveraged loans and bonds has shrunk to roughly $100 billion from more than $300 billion last summer, alleviating some strains on the market.
Read the full article here.
May 12, 2008
Larry Light writes in the WSJ that just in the last 4 weeks, there has been significant strengthening in the market for mortgage-backed securities:
Already, these mortgage-backed securities, or MBS, are showing signs that the market thinks the bad times may be ending. At their worst in mid-March, MBS yields were pumped up to 1.89 percentage points more than ultrasafe Treasurys, according to Merrill Lynch research. Lately, that spread has narrowed to 0.97 point. Historically, the gap is only around 0.3.
What this means is that mortgage bonds are still cheap, with many selling below face value — and that investors, now less scared by them, no longer need large yield premiums as an enticement to buy. “We seem to be headed back to the spreads we used to see,” says Tanya Beder, who heads New York financial advisory firm SBCC Group.
A strong market for the bonds will enable Fannie Mae and Freddie Mac to back more mortgages at better terms.
Read the whole article here.