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  • May 15, 2015 | Tradeweb

    Basis Points: How Does Corporate Bond Buying Affect the Economy? and more

    Untitled Document

    What are the biggest stories shaping the capital markets beat this week?
    Following is our roundup of top trends to watch:

    U.S. Corporate Borrowing Surges

    In 2015, issuance of U.S. corporate debt is increasing at its fastest clip yet. The Wall Street Journal reports that after three consecutive record-setting years this is a sign that companies are increasingly confident in their risk-taking and investments. Firms are taking advantage of a low rate environment, and even with junk bond issuance is picking up.


    Central Bankers Warn Buy-Side on Liquidity Risk

    According to the world’s central bankers, the buy-side must acknowledge risks associated with the growth in bond portfolios and adjust their investments accordingly. Despite a consensus about potential future problems, there is disagreement on the cause for the risks. In addition, liquidity concerns vary by country and regulatory effects can be hard to isolate.


    Will Munis End Up Under the HQLA Umbrella?

    Recently introduced legislation seeks to change the status of municipal bonds so they would qualify as high-quality liquid assets (HQLA) for the liquidity coverage ratio (LCR). While the Federal Reserve is open to the change , seven out of nine banks with more than $250 billion in assets are primarily regulated by the Office of the Comptroller of the Currency and are thus limited in their ability to react to changes.


    How Does Corporate Bond Buying Affect the Economy?

    A new paper by three Federal Reserve researchers indicates the recent corporate bond binge might be depressing spreads, which is linked to an economic slowdown. The authors highlight the speculative nature of their research which tries to measure changes of credit market action on the business cycle, and raise interesting questions regarding the use (past, present, continued, future) of monetary policy to stimulate growth and the tradeoffs and future costs of doing so.


    Are Investors Shifting Their Preference for Government Bonds?

    The persistent downward trend in bond yields has not only stopped but is potentially in the process of reversing, which would be departure from expectations, as the markets believed more yields to go negative.


    Profits Down, Future Unclear for Fannie, Freddie

    Profits are down for both Fannie Mae and Freddie Mac. They are still under a conservatorship with the Federal Housing Finance Agency and winding down their mortgage portfolios. Due to regulatory uncertainty surrounding the next move for both agencies, their future remains unclear.




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