May 3, 2016

THE ECONOMY WON'T BE AN ISSUE:

Corporate Bonds Point to Continued Economic Growth (Simon Constable, May 3, 2016, US News)

The corporate bond market has some good news for us. The economy is set to continue growing.

It's a message that is in stark contrast to the bearish sentiment that emanated from Wall Street during the first few weeks of the year, and it has implications for the type of stocks and other securities which will do well going forward.

The smart way to read the bond market is to look at credit spreads. They measure the amount of interest a borrower must pay over and above what the government pays to borrow. That extra is to compensate lenders for the risks of default, or nonpayment of the loan. The government can't really default - if it runs out of cash it can always print more money.

In the case of corporate bonds, investors are seeing lower risks ahead in the economy because the size of the spread between what the government and what corporations pay in interest has dropped dramatically since mid-February.

Posted by at May 3, 2016 6:39 PM

  

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