Rates Rising, Yet Bond Buying Sets Record

Rising interest rates, higher inflation and tighter monetary policy should be bad news for bonds. Yet investors have been buying record volumes of new bonds.

  • Highly rated U.S. companies issued $414.5 billion of debt during the first quarter, a record for any quarter.
  • Dealogic reported that companies and governments in emerging markets sold $178.5 billion of dollar-denominated debt in the first three months of the year, the best first quarter on record.
  • U.S. companies with junk-bond ratings issued debt totaling $79.6 billion, double from a year earlier.

Why are bonds so popular now?

Economic growth remains uncertain. There’s been plenty of good economic news of late.

The unemployment rate fell to 4.5% in March – or 8.9% if you use the U-6 rate, which even Fed Chair Janet Yellen seems to finally agree is more accurate. The labor force participation rate, which was 62.6% on November, has nudged up to 63%. New orders are up, capital expenditures are up and housing starts are up.

Yet there’s still plenty of uncertainty about the economy, which could be affected by actions in the Middle East, Russia, Korea or elsewhere.

Syria’s use of chemical weapons and President Trump’s response, for example, have created geopolitical uncertainties. While former Secretary of State John Kerry said in 2014 that “we got 100 percent of the chemical weapons out” of Syria as a result of an agreement brokered by Russia, that clearly wasn’t the case. It Read more

Trump’s Not Reagan or Obama

Donald Trump is not Ronald Reagan. That should be obvious, but many optimistic conservatives are drawing parallels and predicting economic nirvana over the next four years.

That’s unlikely to happen, but, conversely, the incoming president is not Barack Obama, either. The Obama presidency has been disastrous on many fronts, creating economic stagnation, a doubling of the national debt, and foreign policy disasters, such as the lifting of sanctions against Iran and Cuba in return for pretty much nothing.trump

We’re not about to join the media in bashing the president elect for choosing cabinet members that do not share U.S. Senator Elizabeth Warren’s ideological views, but we’re also concerned that the stock market’s post-election surge is yet another case of irrational exuberance.

Stocks were already overpriced before the election, yet the market was up 5.4% for the month of November. That’s not going to continue for four more years.

Stephen Moore, a senior economic advisor to the Trump campaign, is not surprisingly among those comparing Trump with Reagan. As he wrote in RealClear Policy, “After the election of Ronald Reagan in 1981, the U.S. Economy experienced one of its greatest booms in history. The growth rate averaged nearly 4 percent for seven years 1982–89. And the stock market rose from less than 1,000 on the Dow to more than 10,000 over the next two decades. This was a period of wealth and job creation that the nation and middle class had seldom seen before. All the liberal critics wrongly said it could not and would not happen.

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