Monday, August 09, 2010

Corporate Bond Annihilation Postponed

Here comes more happy talk from the media establishment.  Blandishments for bond investors are right in here to keep them buying debt:

At its worst point in November last year, the 12-month default rate for American high-yield bonds was 11.3%, according to Standard and Poor’s (S&P). That rate is now rapidly declining, with S&P forecasting it will hit 2.8% by June next year.

The admission that a temporary stimulus bubble is all that stood between bondholders and economic annihilation is there for anyone to see.  Most readers won't get past the headline or the first sentence.  Gotta get back to watching reality TV, ya know.  This news whets suckers' appetites for new debt from exotic places like Venezuela.  There'll be plenty more buyers jumping in when the Fed ramps up its own QE2 purchases.  The Fed will have to sop up those U.S. bonds to replace the lost Chinese demand that's now heading into Japanese bonds

Bonds bonds bonds!  Everybody wants bonds.  The bad part is that buyers will regret getting in at the peak if they buy anything other than ultra-short maturities.

Nota bene:  The author owns 30-day Treasuries maturing in September 2010.