Tags: Pimco | Mark Kiesel | corporates | rule | bond market

Pimco: Buy Corporate Debt — If You Can Find It

Thursday, 07 Jan 2010 09:43 AM

Pimco's Mark Kiesel says the government's huge debt binge means corporates will rule the bond market this year.

The key to understanding the bond market this year is to look at relative supply, Kiesel notes:

The U.S. government is issuing an insane amount of debt, while corporates are deleveraging and issuing relatively little debt — so investors will snap up the relatively small amount of corporate debt that’s available.

Cash flow is soaring, he points out, largely because businesses have stopped investing or spending, and corporate profits should improve as credit conditions ease.

Kiesel says that credit conditions are improving even in the junk bond market, and likes bank debt, which have cut down on debt issuance and still hold value — plus which, lack of supply in the financial sector means that credit spreads should come in.

The U.S. investment-grade corporate bond market revved up for the first time in 2010 with around $15 billion in dollar-denominated debt offered today, The Wall Street Journal reports.

General Electric Capital Corp., the finance arm of General Electric (GE), and German development agency KfW each marketed $4 billion deals.

Other issuers included Lloyds TSB Bank, Barclays Bank, Deutsche Bank, Dexia Credit Local and Motiva Enterprises.

Investor demand for high-quality corporate bonds continues to drive down risk premiums, and with Treasury yields still low, the cost of financing is attractive for companies.

"Everyone wants to borrow money right now," said Greg Habeeb, head of taxable fixed income at Calvert Asset Management in Bethesda, Md.

"They're fighting over each other to get it done."

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Pimco's Mark Kiesel says the government's huge debt binge means corporates will rule the bond market this year. The key to understanding the bond market this year is to look at relative supply, Kiesel notes: The U.S. government is issuing an insane amount of debt, while...
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