Yesterday Lloyd Blankfein, the CEO of Goldman Sachs, warned that there is too much complacency about low interest rates on the part of investors who continue to buy up corporate bonds despite record low yields.
"Someone is buying that debt," Blankfein said at The New York Times' Dealbook conference "What's going to happen when growth picks up and interest rates rise? There's going to be a reversal and people will have losses."
Someone is not only buying that debt. Someone is selling it to them. And one of those someones works at Goldman Sachs. Is this a problem?
Blankfein certainly doesn't think there is a problem. In the same breath that he warned of losses from investing in debt, he said that Goldman is telling all of its corporate clients to borrow as much as they can for as long as they can.
This is an important and profitable business for Goldman. Last quarter it made $466 million from debt underwriting, triple what it made in the same quarter the year before. Goldman Sachs is the seventh biggest underwriter of corporate debt this year, according to Bloomberg's league tables.
Do you think that Goldman's bond sales team talks like Blankfein when they are wrangling investors to buy the latest bond issuance from Goldman's corporate clients? Of course not. Instead, they talk about the quality of the borrower, the yield being slightly higher than other comparables, and opportunities. Sure the paperwork has fine print about risk-factors, interest rates, market environments, yadda, yadda. But they aren't going to play the tape of their boss warning about investor complacency on those sales calls.