Stock Market Tumble Overshadows Bond Market Growth
February 10, 2009 by Tisa Silver
Filed under Finance
Most of today’s headlines focused on the stock market’s dismal performance. The Dow fell over 400 points, losing almost 5 percent of its value. The bond market has garnered much less attention and seems to be making some progress!
According to MarketWatch, corporations have sold double the amount of investment-grade debt this year versus the same period a year ago. Corporations issued $363.1 billion in debt so far in 2009, according to Dealogic.
What’s good about this? A couple of things:
1. The fact that investors are buying bonds. Investment-grade debt is considered high quality debt, meaning the probability that the issuing company will default is extremely low. In such a shaky market investors either ran from even the safest corporate bonds or required higher rates of return. Spreads on investment-grade debt have fallen 136 basis points since December showing that some fear of bonds is dissipating.
2. Companies get financing. When a company issues bonds, cash comes directly to the company. The goal is to invest the money in projects that will provide a higher rate of return than what is owed to bondholders. Without bonds, companies have a major funding problem.
Today’s good news in the bond market was definitely overshadowed by the stock market’s sharp decline (the Dow closed down 381 points). On MarketWatch, today’s article about the bond market had 7 comments while the article on the stock market flop had 363 comments! But if I’ve learned anything about financial markets, it is that popularity isn’t necessarily an indicator of substance.
I think the bond market can provide more valuable insight than the stock market, but for some reason it receives much less press. (Read my explanation here!)
(Image source: Picapp)
