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Kaminsky's Call: Investors Send Message of Extreme Conservatism

Corporate bond sales are surging and the world's biggest computer-services company is at the wave's center.

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CNBC.com

's sale of $1.5 billion of three-year notes sent ripples through investors' circles. On the heels of a record-setting July where yields on debt fell to the lowest level in four years, IBM issued and sold their bonds with a shockingly low 1 percent coupon.

Three thoughts on the messages being sent by the bond market here:

  1. A secular change has taken place. When this much money goes into bonds, expect the cash to stay there for a very long time. Money on the sidelines is going to work in very conservative fashion.
  2. Many bond investors are not remotely interested in price-shopping the stock. IBM's dividend yield is 2 percent, yet it's the corporate bonds with record-low yields that were gobbled up. This signals severe lack of confidence in the stock.
  3. Corporations are attempting to be more capital-efficient, leveraging their balance sheets. Perhaps this could lead to expansion down the road (a positive), but for now, IBM and others are shelling out low-coupon paper.

My "Call-to-Action" today is to forget arguments over deflation, inflation, and double-dips and read the tea leaves. By pushing yields to these levels, buyers are sending a message of extreme conservatism.

A relative melt-up is still possible, but the bond markets are talking, and they deserve to be heard.


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