Interesting FED Gov comments from today....
Boston Fed president Minehan, a voter in this year's FOMC, is speaking to a local Chamber of Commerce this morning. Minehan rationalized what now appears to be overly tight policy as a needed force against the "virtuous cycle" of the booming economy of just a year ago. Since the tightening ended equity markets have been downshifted given changed profit expectations as the economy goes through a difficult transition to a more sustainable growth pace. Minehan expects weak Q4 GDP growth and a moderate 2%-3% though downside risks have become more clear in recent weeks as the economic downturn worsens. No comments on policy and Minehan is not partaking in any Q&A.
....and some interesting observations about renewed
interest High yield debt. It may be indicating a change
in trend to more risk exposure by investors on a macro
basis, and that would include more interest in owning
more volatile (ie tech) stocks.
While so much attention has been afforded to the insatiable demand for the recent flurry of corporate and agency paper that has hit the market, we have actually been keeping a closer eye on developments in the high-yield market. The demand for paper from the top-tier issuers has not been particularly surprising, as the ferocious rally in Treasuries has left accounts to look to pickup more yield. In other words, as far as we are concerned, such demand is certainly not a dynamic that has the potential to significantly dampen the favorable sentiment towards Treasuries. However, renewed interest in the battered high-yield market is likely to be far more indicative of a major change in trend, and could be a precursor to a more sustained bounce in stock to bond ratios. Of interest, while we already mentioned that high yield mutual funds have witnessed net inflows this year, we would also note that some shelved junk offerings have been dusted off. Last week, telecom issuers Charter Communications and McleodUSA priced $2.5 bln of the first high yield offerings of the year, while Ispat Europe Group S.A. (a steel producer) is now expected to sell 175 mln euros worth of 10-year paper in a deal that was originally supposed to price back in November. Not to be outdone, we would note that high yield telecom bonds, which saw over $5 bln in default volume last year, have actually performed rather well lately. |
