Real short term rates at 6.75-7.00%!!!

Discussion in 'Wall St. News' started by Comanche, Jul 24, 2007.

  1. Gross Tells CNBC: "Earthquake" in High-Yield Could Hit Stocks
    Topics:Interest Rates | Corporate BondsBy | 24 Jul 2007 | 03:53 PM ET Font size: The high-yield corporate bond market has gone through "a dramatic earthquake" in the past six weeks because of surging interest rates and that move could impact stocks, Pimco founder and chief investment officer Bill Gross told CNBC.

    Gross, whose firm has about $700 billion in assets under management said on "Street Signs" that the fallout could hurt stocks as well.

    "We've had a dramatic earthquake of about 8.0 magnitude in the high-yield market in the last six weeks and ultimately equities are going to have to take cognizance of that," said Gross.

    Yields in the high-yield market have gone up as much as 200 basis points, or 2 percentage points, over the last six weeks, Gross said. That has him concerned that stock investors have been paying attention to the wrong interest rates.

    "Stock investors who use the Fed model and correlate it to Treasury yields should really be using a model that correlates it to corprote yields and high-yield yields." Gross continued, "to the extent that those yields are up 150 basis points - that's comparable to the Fed moving the Fed Funds rate from 5.25% to 6-and-three-quarters or 7%. That's a tremendous push in terms of higher costs and interest."

    He said that the rise in high-yielding corporates is also a "tremendous cost for future financings on the private equity side and leverage buyouts and so the stock market, the equity market is going to have to deal with those yields in the index market as opposed to the cash market which is still trailing."
  2. Thanks for the link.

    Looks like we're finally getting a risk premium which for awhile had been non-existent.

    p.s. the thread title threw me for a loop. Real implies adjusted for inflation. Why not state it as it is: Corporate bond yields rise to 6.75 - 7%.
  3. I think this may be the dip *not* to buy. Not yet at least.
    Lower your buy targets... 1460.
  4. Perfect example of this-

    Stocks Bounce Back Despite Jitters Over Chrysler Financing
    Topics:Economy (U.S.) | Economy (Global) | Market Outlook | Currencies | The Bond Report | Stock Market
    Sectors:Oil and GasBy | 25 Jul 2007 | 11:59 AM ET Font size: Stocks bounced off their lows to trade higher in a volatile session after Wall Street learned bankers weren't able to raise $12 billion to finance the leveraged buyout of Chrysler.

    "This is a market that's trying to figure out which direction its likely to go next," said Larry Smith, chief investment officer at Third Wave Global Investors. "I think the big issue is the fact that the market is now adjusting to higher levels of long-term bond yields."

    Worries about the credit market weighed on stocks after a strong start on good corporate earnings.

    "We sort of had a reflex rally early on from yesterday's selloff and that's run out of a little bit of steam," Arthur Hogan, managing director at Jefferies, told "Some of that exhuberance over corporate earnings has waned and we're waiting for the next positive catalyst to drive us higher."

    Bankers raising funds to finance DaimlerChrysler'sDCX
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    [DCX Loading... (%) ] deal to sell Chrysler Group to private equity firm Cerberus have postponed a sale of $12 billion in debt. The bankers plan to fund most of that debt now from their own pockets. The move is not expected to affect the closing of the deal.