Counterparties: Borrow as fast as you can
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American companies have gotten the message from the market: borrow as much as you can, as fast as you can.
So far this year, $315 billion of investment grade bonds and $124 billion of junk bonds were issued, according to Thomson Reuters data, respective increases of 36% and 17% over the same period last year. The massive syndicated loan market is up 13% to $654 billion over the same period. Those numbers donâ€™t include the blazingly hot convertible-bond market, or foreign issues like Petrobrasâ€™s monster $11 billion bond last week.
Even as debt issuance booms, however, Reutersâ€™ Mike Dolan reports that finding an actual bond in the wild isnâ€™t necessarily easy. â€śJPMorgan estimates that the world’s central banks and commercial banks… hold some $24 trillion worth of bonds — or 55% of the entire $44 trillion universe of government, asset-backed and corporate bondsâ€ť.
Sober Look says that low rates have pushed companies to borrow, even if they donâ€™t have a use for the capital — debt and cash are piling up on American balance sheets. John Kay attributes growing cash piles to a decline in truly capital-intensive US businesses, like heavy manufacturing. Soaring debt issuance, he thinks, is â€śmore likely related to financial engineering, or the acquisition of existing assets, than to new investmentâ€ť.
On cue, there are worries about excessive risk-taking by banks and the â€śreach for yieldâ€ť. The bond rally is vulnerable, according to the WSJâ€™s Richard Barley, â€śsince it isn’t driven by fundamental factors.â€ť The Contrarian Corner comes to a more nuanced conclusion. Some portions of the bond market are overpriced (CCC), others arenâ€™t (BB), because investors â€ścanâ€™t resist a high-coupon and overestimate their ability to pick the bond that wonâ€™t defaultâ€ť. — Ben Walsh
On to todayâ€™s links:
Steve Cohen is considering a deal with authorities that would shut his fund to outside investors – Bloomberg
Cohen has been subpoenaed to in the SAC insider trading investigation -Â DealBook
Gold and the “wedge between financial markets and economic fundamentals” – Mohahmed El-Erian
A rant on why money isnâ€™t â€śeasyâ€ť – Scott Sumner
Time to start worrying about the recoveryless recovery – WSJ
And, of course, there are many more links at Counterparties.