A few months into a bond rally that has seen yields fall to record lows, some analysts are starting to raises some concerns about the long-term implications of current issuance levels.
For a long time, the abundance of new issues made sense: companies took advantage of low interest payments and investors wanted something higher than rock bottom government bond yields.
But Simon Ballard, senior credit strategist at RBC Dominion Securities in London, noted on Wednesday that things may be getting a little out of hand. His argument comes on that back of Mexico's recent $1-billion (U.S.) issue with a 100-year maturity.
Looking past the pricing, which he chose not to debate, Mr. Ballard is concerned with the fundamentals. "Rates may be low for now, and may look set to stay low well into 2011," he wrote, but "as and when" governments eventually hike interest rates, higher yields will make current lower quality investments much less attractive.
"This low interest rate, low yield environment that we find ourselves in today does seem to be blurring broader investment vision," he wrote. By not looking long-term, Mr. Ballard said the market is "forever blowing bubbles."
Société Générale credit strategist Suki Mann is starting to feel the same way. "It is an issuer's paradise and has been for some time," he wrote. "New issues are continuing with little or no premium but are now given the benefit of the doubt just because they perform in secondary [market]"
However, Mr. Ballard noted that isn't overly worried just yet. He's just bringing the issue to light.