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Last Week in the Bond Markets

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November 07, 2011 – Comments (4)

I know, I know, bonds are about as exciting as watching paint dry.  But, stock investors should take a peek at company debt and what they're doing with the money every now and then.

Last week over $17 billion of high quality corporate bonds were issued.   

An indicator I believe is pointing to a bond market bubble continues with Becton, Dickinson (BDX). Colgate-Palmolive (CL), Mattel (MAT), and Toronto-Dominion (TD) all issuing bonds with coupon yields below their dividend yield.  That means those companies could improve cash flow by borrowing and using the proceeds to buy their own stock - not necesarily a good idea, but an interesting possibility. 

So far, Intel is the only company I'm aware of that issued bonds and specifically said the proceeds would be used for a stock buy back.

Fool on!

Russ

4 Comments – Post Your Own

#1) On November 07, 2011 at 9:49 PM, Frankydontfailme (27.22) wrote:

Bond bubble indeed. I wonder though, if corporate bonds will continue to rise in value and even spike higher (as in any good bubble) as deflation fears sink in, corporate profits peak and fall, and government defaults kick in full gear.

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#2) On November 08, 2011 at 1:22 AM, awallejr (82.76) wrote:

Well that is the question, buy bonds for fixed yield, or equities with potentially increasing yields.  It really becomes an age centric issue.  The older one is the more one is inclined to buy those bonds.  Personally I prefer equities that actually increase their yield over time since it is the income stream that I am more interested in.

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#3) On November 08, 2011 at 7:39 PM, Option1307 (29.97) wrote:

Good thoughts, +1.

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#4) On November 08, 2011 at 8:02 PM, rd80 (98.69) wrote:

I wonder though, if corporate bonds will continue to rise in value and even spike higher (as in any good bubble) as deflation fears sink in,

Hmmm, thought I replied to this last night.  Wonder if TMF's cyber-goat has been busy eating posts again.

I firmly believe bonds in general are in a bubble (could be wrong), but have absolutely no clue if the bubble is done inflating.

Personally I prefer equities that actually increase their yield over time since it is the income stream that I am more interested in.

Me too.

Thanks all for the comments!

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