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 The Debt Market's Risk-Reward Numbers are Getting TemptingThe chart above shows junk bond spreads for the last seven months. The rates on this type of debt are now approaching 21%. In our recent conversations with bond dealers at the major banks, many have said the valuations are "stupid" attractive. At some point, the rate of return will stimulate private market buyers to accept the risk/reward trade-off and begin buying debt again. As a result, companies will regain access to capital and be relieved of near-term liquidity issues. |
- Options News: STT, ADM November 6, 2009
- What's Hot: CVS, DPS November 5, 2009
- Sidewinder: CVS, VIA, XL November 5, 2009
- Options News: CTSH November 5, 2009
- Sidewinder: CSCO, SPY, SPLS November 4, 2009
Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
Watching the Treasury's Actions
In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
Credit Markets Point to Upturn
The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
