Trader Talk

Corporate Paper Flood Goes On


The flood of corporate paper keeps coming. Yesterday, it was nearly $16 billion in investment grade debt floated from companies like Dell and Home Depot .

Today, more names join the parade:

Hewlett-Packard ,

American Express ,

US Bancorp ,

Goodrich ,

Duquesne Light ,

Tech Resources,

Unum and

Nabors , to name a few.

Yields are absurdly low: Dell priced one tranche of its offering — a 3-year offering — at 70 basis points above comparable Treasuries, or about 1.5 percent.

Why would anyone buy 3-year paper at 1.5 percent? Because they don't know what else to do.

Why not buy utilities, REITS, and telecom stocks? AT&T and Verizon both offer yields above 6 percent, for cryin' out loud!

Because the average investor--and, it appears, the average asset manager — is terrified of stocks. The average investor is worried about protecting principal, and have been pretty beat up between 2007 and today.

They think the principal is (reasonably) protected and they get their interest payment...all of this is true...if you hold to maturity. And you own individual bonds.

There is also uncertainty over tax legislation--there is talk about going from 15 percent tax on dividends to as high as ordinary income.

The high yield market is strong as well. How strong? A half-dozen companies are issuing debt, but again at head-shaking yields. Here's an example: Alliant Techsystems (ATK), a defense contractor, will be selling a $300 million 10-year note, likely today. The yield talk: 7 percent. For a 10-year high-yield note, with much higher risk. Traders tell me that 6 months ago, that note would have likely carried a yield of 8.5 percent.

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