Trader Talk

Retail Sales Good News--Debt News Not So Good

There is good news and bad news today. The good news is that there have been some signs of stabilization: retail sales better than expected, commodity off their highs, and the stock market is behaving better this week.

The bad news is that we keep getting wild cards on the debt side.

The AIG story yesterday is a good example . There was also word of a series of failed municipal bond auctions yesterday, including one for the Port Authority of New York and New Jersey. Also this morning: S&P reported that 50 percent of the European company's involved in leveraged buyouts had more debt on their balance sheets than originally forecast, and as a result the risk of defaults are rising.

If you picture the debt market as a series of rooms, each room containing a separate "wing" of the debt market (U.S. gov't treasuries, mortgage backed securities, muni bonds, leveraged debt, and emerging market debt), we are in a situation where, every time you open a door to one of those rooms, a bat comes out. And that has kept the market on edge.

It's important to note that the U.S. debt market--at $29.2 trillion--is bigger than the U.S. equity market, at about $21 trillion.

Here's the size of the U.S. debt market, along with the size of its components.

U.S. bond market debt: (trillions)

Mortgage-related $7.1
Corporate debt $5.7
Treasuries $4.4
Money markets $4.1
Fed, agency securities $2.8
Munis $2.6
Asset-backed $2.5
Total 29.2 trillion

Questions?  Comments?