More Videos
- Workers Staying Put at Their Jobs as Jobless Surges
- Apple Surpasses Nokia as Top Handset Maker by Profit
- Three Things the US Can Do To Stop the Dollar's Decline
- Toll Brothers: More Contracts Signed, but Sales Down
- Fed's Lacker: US in a 'Good Place' With Inflation
- Bear Stearn Fund Managers Not Guilty on All Counts
- Ponzi Proceeds: Bidding on Madoff's Toys
- Commodity ETFs: Returns May Not Match Expectations
- JPMorgan Chase to Hire 1,200 Mortgage Officers
- Beware of 'Trampling Effect' When Market Tops: Manager
- Gold Heading to $1150: Art Hogan
- Starbucks Brews Up Growth
- Farr: An Extended Period—No Fat Lady in Sight
- More Upside if S&P Passes This Number: Market Pro
- Murdoch Lashes Out At Google
- Fighting The Flu Vaccine Critics
- Nov. 10: Unusual Volume Leaders
- Shadow Inventory Dwarfs Loan Mods
MOST SHARED
- JPMorgan Chase to Hire 1,200 Mortgage Officers
- Apple Surpasses Nokia as Top Cellphone Maker by Profits
- Parsing Treasury's Loan Modification Report
- Gold Heading to $1150: Art Hogan
- Bear Stearn Fund Managers Not Guilty on All Counts
- Toll Brothers: More Contracts Signed, but Sales Down
- Adobe Cuts 680 Jobs, to Take Charge
- Madoff Apartment Price Slashed by $1 Million
- Should You Believe in this Rally?
Text Size 
It started with stocks, but investors are now withdrawing money from bond mutual funds at a record pace as they seek to avoid assets exposed to any kind of risk.
Going against the usual pattern in a recession, when fixed income is usually viewed as a "safe haven" relative to stocks, bond funds had record net outflows of $31 billion in October according to TrimTabs Investment Research estimates. (see chart below)
 |
Analysts point to the collapse of Lehman Brothers as a turning point in the credit crisis. Debt issuance and prices have fallen significantly, and yields have hit the highest levels in years.
In absolute terms, Baa/BBB yields are now in the 9.25-9.50 percent range, the highest since November 1994. But then Treasury yields were closer to 7 percent, more than twice the current level. That means, in relative terms, corporate bonds are now at the cheapest prices since at least 1954, when the Fed’s data begins.
“We are probably in for a long and deep recession,” said Jim Hannan, who manages about $3 billion of bonds at MTB Investment Advisers. “Every day, the economic statistics come out and they’re weaker than expected.”
Hannan said he’s been selectively buying the bonds of financial institutions that enjoy government backing. He also blamed reduced liquidity in the credit market for the sharp decline in prices.
Since the Lehman bankruptcy, global bond issuance is down about 41 percent, according to Dealogic. Only $85 billion of bonds were priced in October, making it he slowest month since December 2005. The average spread price that investment-grade credits have to pay on new deals has increased to 2.91 percentage points from 1.77 percentage points, according to Dealogic.
The question of paying more is particularly important. Altria on Nov. 5 paid 10.2 percent to sell 30-year bonds. High rates like that will cast doubts on M&A activity and threaten free cash flow, which reducing companies’ abilities to fund growth and dividend payments.
Print
Email
- Vote and suggest your own, and remember--there's a fine line between a hero and a zero.
- If you are lucky enough to have money and the time, this is a great time to see America, says CNBC's Jane Wells.
- What’s powering your microwave, fridge and computer? Part of it is fuel from Russian nuclear weapons. The NYT reports.
- One author sees lessons for you in Disney’s recent Makeover of Mickey Mouse: “Nice” doesn’t always win.
- With 123 years of history, slogans and commercials, Coca-Cola is the most recognized brand on earth.
- The opening of a virtual pet store in “World of Warcraft” could prove a cash bonanza for Activision-Blizzard.
Data is a real-time snapshot *Data is delayed at least 15 minutes