| 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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| 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)
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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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Life After Lehman |
Forbes.com - Sept. 15, 2009 - by Matthew Craft
Credit markets are open for corporations and banks to borrow again. But that doesn't mean they'll lend you money.
In the weeks following Lehman Brothers' bankruptcy filing on Sept. 15, 2008 the flow of credit vanished. Rates on corporate and municipal bonds skyrocketed. The market for new securities backed by bundled loans shuttered. Banks balked at lending to other banks. The way markets for all types of debt reacted, a second Great Depression seemed at hand.
A year after Lehman collapsed, the panic has subsided and the Armageddon scenarios some envisioned have remained fantasy. Risky securities like junk bonds have rallied. Large corporations with strong balance sheets, such as Wal Mart Stores ( WMT - news - people ) and MetLife ( MET - news - people ), have recently found buyers for their debt at precrisis rates.
"Things are a lot better than they used to be," said David Kotok, chairman of Cumberland Advisors in Vineland, N.J. The barrage of efforts from the Federal Reserve and government agencies to get credit flowing through boosting bank reserves, guaranteeing bonds and buying assets clearly worked, Kotok and other money managers argue. "You get lots of liquidity and zero interest rates and people begin to believe," Kotok said.
The financial system has been saved from collapse, and even struggling financial giants like Citigroup ( C - news - people ) and General Electric ( GE - news - people ) can find investors willing to lend them money. But banks’ ability to borrow cheaply hasn’t led to credit flowing to consumers and small businesses. "Banks are still writing off losses and are loath to extend new credit," Kotok said. "Recovery is a slow process."
In the second week of this September, for instance, banks cut their commercial and industrial loans by $10.3 billion and their consumer credit lines by $6.4 billion. According to David Rosenberg, chief economist and strategist at Gluskin Sheff, U.S. banks have pulled $200 billion in credit since the end of July.
Even though bond markets have rallied, the one area of the credit markets that still looks troubled is tied to consumer debt. At the start of this year the market in which banks sell off their bundled loans as asset-backed securities looked dead. The Federal Reserve’s Term Asset-Backed Securities Loan Facility, launched in March, revived it. The TALF has helped lift prices for asset-backed securities and encourage sales, said David Hartung, a senior vice president at DBRS, a credit rating agency. Although Hartung has seen a pickup in auto-loan and credit card paper in the last two months, lenders and investors have adopted more stringent standards, and the supply of paper seems to be dropping to match demand.
Other gauges of fear now look blissfully optimistic. During the crisis, Americans became familiar with two credit-market barometers, the London Interbank Offered Rate, called Libor, and the difference between Libor and Treasury bills, known as the TED spread. Libor is used as a reference rate for borrowing among banks, corporate loans, derivatives and some home mortgages. After touching 4.8% last Oct. 10, Libor has fallen to a recent 0.29%. Similarly, the TED spread hit 4.6% on Oct. 10 and now stands at 0.16%. Both are near historic lows.
Fear of a meltdown had pushed prices for high-yield junk bonds to around 55 cents on the dollar last fall, said Martin Fridson, chief executive of Fridson Investment Advisors. "It had to take the escalator to get back up to the basement," he said of the high-yield market.
Fridson, considered a corporate-bond sage, had started an investment fund months before the panic and had been picky about buying beaten-down bonds throughout the credit crisis. The pace of the rebound caught him off guard. Junk bonds jumped 28% in the first six months of this year and 43% through Sept. 11. "If I had thought it would be that quick," he said, "I’d have taken out a mortgage on my apartment and put my whole life savings in it."
What turned markets around? The Federal Reserve and the Federal Deposit Insurance Corp. standing behind banks, backing their bonds and short-term loans of commercial paper, said Fridson. The FDIC guaranteed $160 billion through its Temporary Liquidity Guarantee Program of the $595 billion in corporate bonds sold through the first six months of the year. Such efforts seemed to boost credit and equity markets, he said. (See "Bair The Bond Angel.")
Junk bonds now pay 878 percentage points more than Treasury bonds, compared with 21.8 percentage points last Dec. 15, according to Bank of America ( BAC - news - people )-Merrill Lynch data.
On Wall Street, the fall of a venerable bond trading house and the fourth-largest investment bank has had little noticeable effect on the workings of bond markets, according to participants. The crisis has, however, made the stongest banks even stronger. JPMorgan and Goldman Sachs ( GS - news - people ) dominate the rankings for advisory and underwriting known as league tables and Barclays ( BCS - news - people ) has cleary benefited from picking up Lehman’s bond operations for $1.7 billion.
Barclays now underwrites more deals and handles more money in the U.S.: $222 billion across 402 issues so far this year versus $142 billion across 279 through three quarters in 2008, according to Thomson Reuters’ data. The bank has climbed from fifth place to third in U.S. fixed- income underwriting, and U.S. revenue has soared.
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Income Security Recommendation January 2013 Issue.
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