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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
|
1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Morgan Stanley issues alert on corporate bonds after explosive rally |
Corporate bonds have seen the most explosive rally in nearly a hundred years since the markets touched bottom last winter, but, according to a report by Morgan Stanley, they look increasing vulnerable as they pull far ahead of equities.
Andrew Sheets, the bank's European credit strategist, has advised clients to beware signs of creeping angst in the credit options markets, where volatility has been flashing an early warning signal for some weeks.
"The pace of the recent rally has, for the first time, begun to show signs of overextension," he said.
The September option contracts have seen a "sustained rise in implied volatility" yet the interest spreads on corporate bonds have continued to drop sharply. Bond investors ignore this sort of divergence at their peril.
Morgan Stanley said none of the previous bond recoveries going back to 1925 had been as dramatic as this.
"Credit rallies are historically fast and fierce, but this one has become unusually rapid. Levels are almost back to where they were in the first quarter of 2008, but equities are still a long way off that," said Mr Sheets.
Analysts say the current dividend yield on the German utility RWE is 7.7pc while the interest return on a five-year bond issued by RWE is 3.2pc, and the credit default swaps have dropped to just 50 basis points.
These markets are clearly out of alignment. They appear to be reflecting an assumption of a prolonged 'bond-friendly' form of gentle deflation, which is at odds with assumptions in the rest of the market.
The credit euphoria undoubtedly reflects the emergency measures by governments around the world to stabilise the financial system, but the wash of liquidity should be an equally good tonic for stock markets. Credit rallies usually anticipate stocks by about 3 months, but we are well past that stage of the cycle. The two should be converging by now.
Either stock markets will have to rise sharply to close the gap – an outcome in doubt after poor confidence date in the US and jitters in the Shanghai markets as the Chinese authorities restrain lending – or credit spreads must start to widen again to reflect the risk.
Spreads on non-financial grade BBB-rate bonds in Europe have dropped backed to the long-term average of around 200 basis points above benchmark government bonds, a fall from over 548 earlier this year. This may prove "rich" given the spate of defaults expected by the rating agencies over the next two years.
It has taken just eight months for spreads to recover fully in this rally. It typically takes almost three years, and sometimes much longer. The credit markets seem to be telling us that the Great Recession of 2008-2009 was much ado about nothing.
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| Stuff to look at |
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S&P Commentary and Newsletters: S&P
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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