Courtesy of Pam Martens.
SPDR Barclays High Yield Bond ETF, March 2008 Through March 2009, Versus the Dow Jones Industrial Average
SPDR Barclays High Yield Bond ETF, May to August 2015, Versus Dow Jones Industrial Average
By Pam Martens and Russ Martens: August 18, 2015
According to data from Bloomberg, corporations have issued a stunning $9.3 trillion in bonds since the beginning of 2009. The major beneficiary of this debt binge has been the stock market rather than investment in modernizing the plant, equipment or new hires to make the company more competitive for the future. Bond proceeds frequently ended up buying back shares or boosting dividends, thus elevating the stock market on the back of heavier debt levels on corporate balance sheets.
Now, with commodity prices resuming their plunge and currency wars spreading, concerns of financial contagion are back in the markets and spreads on corporate bonds versus safer, more liquid instruments like U.S. Treasury notes, are widening in a fashion similar to the warning signs heading into the 2008 crash. The $2.2 trillion junk bond market (high-yield) as well as the investment grade market have seen spreads widen as outflows from Exchange Traded Funds (ETFs) and bond funds pick up steam.
The big fear this time around is who is going to provide the liquidity in the junk bond market if too many investors head for the exits at the same time.
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