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."
End to Housing's 'Free Lunch'?
In contrast to the recent panic in the equity and bond markets, the housing market keeps chugging along. The one-time scourge of all that went wrong with the economy has shown again that it can be a "lone bright spot" amid uncertainty.
Home prices made a major leap in April, setting a monthly record for gains, according to the latest S&P/Case-Shiller Home Price Indexes. From March to April, home prices gained 2.6 percent and 2.5 percent for the top 10 and top 20 markets, respectively. Average prices rose 11.6 percent and 12.1 percent in April from a year earlier.
Amid the good news, though, Zillow Chief Economist Stan Humphries said the record price increases in residential real estate may not be built to last. Inventories are beginning to show signs of easing, and mortgage interest rates are creeping up. Going forward, both of these factors will help mitigate extreme price spikes caused by strong housing demand and low supply.
"The recovery is definitely broad-based. The two composites showed the largest year-over-year gains in seven years."
—David Blitzer, S&P Dow Jones
"Today's Case-Shiller numbers may reflect where the housing market has been in some of the frothier metros, but they are not indicative of where it's headed."
Where the Manufacturing Jobs Are
U.S. manufacturing is back! Sort of. Several big companies, including Caterpillar, GE, Apple and Ford, have announced that they are shifting some factory jobs back, primarily because of higher production and energy costs overseas.
Since January 2010, the U.S. has added 520,000 manufacturing jobs, according to the Bureau of Labor Statistics. The states with the highest levels of manufacturing job creation between December 2009 and March 2013 are Michigan, Texas, Indiana, Ohio and Wisconsin, according to the National Association of Manufacturers.
But the U.S. remains in catch-up mode, with the overall level of manufacturing employment—12 million jobs—representing a decade-long decline that is the largest since the Great Depression. The nation has lost 5.7 million manufacturing jobs over the past decade, or on average, 1,276 such jobs every day for the past 12 years, according to the Information Technology and Innovation Foundation.
"We are never going to see manufacturing in this country like it was before. We've become a more service- and information-industry economy, and while manufacturing is still important, it doesn't carry the weight it once did."
—Tony Cherin, finance professor emeritus at San Diego State University.
—By Eric Rosenbaum