Global financial markets continued to see new record highs which almost approached 2007 peaks.
The last three weeks saw continual bullish movements on the high-yield corporate bond market, leading corporate spreads to collapse to the minimum over the past ten years.
The BoA / ML Corporate Master Index which reflected the level of those spreads descended to 105 points, the lowest level since the 2008 financial crisis. This number was only 1 point less than the 2014 nadir.
According to Hanks Mikkelsen, the analyst of Bank of America Merrill Lynch, the bullish momentum in the debt market would soon print a slowdown. He was pretty sure that the strong movement had already been behind us.
Despite the near-term weakening of the external demand, Mikkelsen continued to note energetic inflows of investing money into high-yield bond funds / ETF.
The expert signaled that real figures could be twofold due to the counting method. Besides, many assets were appraised to be purchased by borrowing funds and that meant the leverage was near record highs.
Broadly speaking, we are now witnessing the demand in buying securities approach a dangerous level as it could be compared to the previous credit bubble.
The following histogram shows the greed of market participants, which almost reached its historical highs. The 96 level was the second highest value of this index since 1998.
Surprisingly, the highest sales data of the S&P index remained less than 2% this year. Given such posture persisting until the end of 2017, this year will mark a new record for this indicator over the last 100 years, according to Bloomberg’s statistics.
Discussing the current situation, David Wessel, director of the Hutchins Center at the Brookings Institution, appraised that the surges of global financial markets were normal because “the world economy seems to be in pretty good shape with strong corporate profits”. In addition, he mentioned other positive factors such as the low policy interest rate which was good for stock prices because investors were looking for someplace to invest their money with expectations for a higher return than buying bonds or saving.
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