Thursday, January 29, 2009

Good News From the Credit Markets

From the WSJ:

Some $1.4 billion in junk bonds were up for grabs Wednesday as speculative-grade companies continue to capitalize on renewed investor interest in riskier assets.

Natural-gas producer Chesapeake Energy sold $1 billion of new senior notes after increasing the deal from an initial target of $500 million. Meanwhile, Inergy LP, which sells propane and leases propane supplies, bought home $203 million by selling its six-year bonds at a discount.


It has also allowed speculative-grade borrowers to sell more than $4.2 billion of bonds already in January, making it the busiest month for junk, or high-yield, issuance since July 2008 when companies raised more than $3.8 billion in the market, according to data provider Dealogic.

There are a lot of reasons for this.

1.) The yield on Treasury Bonds does not compensate investors for the risk they are taking. With the government now promising to issue a ton of debt to pay for the stimulus plan, yields have no where to go but up.

2.) The Fed has been aggressively trying to get the credit markets jump started for the last 6-9 months. And the efforts are starting to pay off:

The a2p2 spread is coming in

Financial paper issuance has ticked-up and asset-backed issuance is evening out.