Recapping the day's news and newsmakers through the lens of CNBC.
Don't plan on issuing another round of junk bonds to fund your company or any of its acquisition plans any time soon.
The high-yield bond space has been particularly hard hit by the bond market massacre. Junk bond volume slowed to $7.1 billion this month, the slowest pace since December 2011 and one-fifth the average monthly total in 2013. For the year, issuance is still at a record $195.2 billion, but the recent outflows across the board from bond investments (as the Federal Reserve plans for the end of quantitative easing) suggest the situation could get worse before it gets better. The situation is bad not just for companies looking to issue debt but for banks that depend for earnings on healthy debt markets.
"If rates continue to increase, we could see massive outflows from high-grade bond funds and a much more disorderly rotation with significantly wider credit spreads. This scenario remains clearly the biggest risk to high grade this year—and with the rapid increase in interest rates we have witnessed, the probability of such scenario has increased."
—Hans Mikkelsen, fixed income strategist at Bank of America Merrill Lynch, in a note to clients.
China Credit Crunch Hunch
Is the Chinese liquidity crunch for real? That depends on whom you ask.
It's been positioned as one of the primary reasons for recent market volatility—Fed aside—and the People's Bank of China felt compelled to publicly confirm for the first time that it is taking steps to ease a credit crunch that has sent overnight rates skyrocketing and precipitated a dive in the Chinese stock market Monday.
However, two market veterans presented diametrically opposed views about the Chinese situation.
Speaking to CNBC from the FundForum International conference in Monaco, "Gloom Boom & Doom Report" author Marc Faber said too many companies in China borrowed at low rates from the state and then lent that money to questionable borrowers instead of investing in manufacturing, and that has created a huge credit bubble.
On the other hand, Jim O'Neill, recently retired chairman of Goldman Sachs Asset Management—and otherwise known as "Mr. BRIC"—dismissed the idea of a crunch. He spoke to CNBC from the International Capital Conference in Paris.
The opposing market pundits did agree on one thing: China's economy won't keep up with its central bank's target of 7.5% growth this year. "Dr. Doom" Faber sees the prediction as part of the coming colossal Chinese bubble, while O'Neill views it as a reasonable reining in of heady growth expectations.
"I think China, if you look at the expansion of credit as a percent of the economy, had a colossal—not a small—a colossal credit bubble."
"The notion that there's a genuine liquidity crunch is crazy. China's biggest underlying macroeconomic dilemma is that they save too much. If they wanted to bring rates down to zero they could do it in five seconds."