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Unformatted text preview: Debate gathers pace on whether corporate bonds are too ‘hot’ By Aline van Duyn and Michael Mackenzie Published: September 28 2010 19:21 | Last updated: September 28 2010 19:21 Companies continue to borrow money at eye-poppingly low rates of interest. Last week, investors bought nearly $5bn of bonds from Microsoft , with some of the debt paying the lowest interest rates on record. Activity is not just roaring in the blue-chip part of the corporate bond markets: junk bond volumes have reached their highest ever level in both the US and Europe. In both the US and Europe, issuance so far this year has outstripped the record amounts of bonds sold in previous years. With new bonds selling like hot cakes, borrowing costing companies less than it did during the pre-crisis credit boom and with few signs that the money pouring into bond funds will slow any time soon, a debate is stirring about whether the corporate bond markets are too “hot”. “There are two schools of thought,” says Jim Casey, managing director at JPMorgan. “The first looks at absolute interest rates, which are at historic lows, and which could therefore indicate we are at a market top. The second looks at credit spreads, and these are still much higher than the historic average.” For example, the average yield for US investment-grade bonds is at about 3.75 per cent, down from about 6 per cent in June 2007, according to Barclays Capital indices (see chart).in June 2007, according to Barclays Capital indices (see chart)....
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This note was uploaded on 11/06/2010 for the course ECON Econ taught by Professor Liasa during the Spring '10 term at University of San Francisco.
- Spring '10