Tags: corporate bonds | roubini

Strategist: Corporate Bonds Look Good as Stocks Cool

Wednesday, 28 Mar 2012 08:20 AM

Central banks in Europe and the U.S. have flooded their respective economies with liquidity over the past few years, which has been very positive for stocks.

But such loose monetary policies have done about as much good as they can do, and stocks are due for a breather, says Gina Sanchez, director of equity and asset allocation strategy at Roubini Global Economics.

The U.S. has pumped $2.3 trillion into its economy via asset purchases from banks, known as quantitative easing, while the European Central Bank has lent out more than $1 trillion via low-interest loans to banks, known as Long-Term Refinancing Operations (LTRO).

Stocks have soared, but once earnings cool, the rally will end. “The catalysts have all pretty much switched from potentially positive things like the LTRO and the Greek bailout, et cetera, to now things that are potentially negative," Sanchez tells CNBC.

"We have Spain simmering really right now in the background and that could be a dampener in the markets, and we’re going to head into earnings season, and we’re expecting that there might be some earnings disappointment."

High-grade corporate debt would make a sound alternative, Sanchez adds.
Corporate bonds have been a hot market, as companies take advantage of low interest rates to finance themselves, giving investors a sea of investment options.

Talk of more stimulus coming from the Federal Reserve has stocks rising, leaving experts worried that economic fundamentals aren't reflecting frothy equities markets.

"We remain stuck in a world where markets seem unable to cope without the possibility of monetary stimulus, underscoring the fact that the global economy still has some way to go before it is successfully weaned off active central bank intervention," says Ben Critchley, a sales trader at IG Index, according to the Associated Press.

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