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M$1.00  Funded By Mahalo ? |  April 10, 2009 02:32 PM

Are corporate bond prices signalling all is not well in business?

Bond investor focus on the companies ability to pay down debt. The spread between corporate bond yield and US treasuries indicated historical skepticism.

Are bond investors beginning to believe the economy is improving?

If companies are expecting lower sales will bond yields remain high?

If bond yields are high, why are stock market valuations climbing?
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greenscree... greenscree...
 
 April 10, 2009 05:09 PM
The Wall Street Journal ran an article this morning that actually answered this exact question. It compared an economic forecast of joblessness, derived from corporate bond prices, to the actual change in non-farm payroll, and found that corporate bond prices were accurate to within a couple percentage points of the actual result over the last 35 years.

So what do the current bond prices show? That joblessness is going to more than double in the coming year. That would be a huge amount of unemployment, if true. It would certainly knock the economy down a great deal.

Now does that mean all is not well in business? One could argue that reducing jobs is an appropriate response to an economic downturn. But certainly all is not well with the economy.
Source(s):
Today's WSJ

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• What does this mean? Does it mean that corporation are not paying down their debt? Banks are raising rates, to cover the increasing risk of defaults. However, Commerical Paper is becoming available again. However, CP is alittle over half the dollars from peak. Debt has caused almost a 50 percent contraction. Will surviving business now be capable of powering through their debt?


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