Despite the tightening of monetary policy in the United States, long term yields actually fell over the course of 2004. Credit spreads contracted as well, as the substantial existing liquidity in the financial system was put to work. Corporate bond issues continued to sell well and bankers returned to financing speculative deals. According to Merrill Lynch, the largest leveraged financing activity is lending for dividend payouts to sponsors of private equity transactions. In other words, bankers financing the dividend stripping of levered companies! Yes, risk is back in vogue in Wall Street circles.
Read the full newsletter at the link below.Canso 2004 Q4 Corporate Bond Newsletter