Wednesday, October 26, 2016

The $18 Trillion Credit Pension Injection
Bloomberg article highlights how much of the bull market in bonds has been fueled by the buying of bonds by pension funds .. now in search of yield, pension funds have been going after corporate & private debt .. "What would make these pensions withdraw their cash from company bonds? Hard to say. Perhaps an inverted yield curve could put a dent in it because both traditional and nontraditional financial systems suffer when longer-term rates are lower than short-term ones. This could disrupt current channels of credit creation, causing a pullback. In the meantime, however, Reynolds just sees the credit boom gaining speed and continuing to fuel share buybacks that have driven stock gains .. While this dynamic supports values in the $8 trillion U.S. corporate credit market in the near future, it is lamentable in the long run. It encourages companies to sell debt for less-prudent endeavors. And it further discourages investors from scrutinizing specific companies' business models, with active fund managers generally underperforming the broad-based melt-up in riskier asset values.As is, companies are incurring debt much faster than they're increasing their profits. Nations are borrowing money for a half century or more. The global debt load just keeps ballooning. But the longer this game continues, the more risk builds in the system and the broader the pain when it all comes crashing down."
LINK HERE to the article

No comments: