I have a friend who has been a bond salesman for a large New York based broker for almost 20 years now. A former New York Jets running back, he is colorful, friendly, and calls or emails me frequently. A few months ago I wondered what it was that I had done to offend him, since the phone calls and emails became a fraction of the historical level of communication. Reading through JP Morgan's earnings I now understand why - boy, is he busy selling bond.
JP Morgan's fixed income revenue was a record $5 billion dollars. Whew, that's rather historic - along the lines of Gretzky scoring 92 goals during the 1981-1982 season. On Thursday, we will get a glimpse inside Goldman Sach's fixed income world, which should be equally as strong but played-up less since the bears need to reload some new ammunition after Wednesday's stellar asset price performances.
What is obvious is that historically low interest rates have been pushing investment dollars into corporate bonds as quickly as possible. And why shouldn't they? Corporate balance sheets continue to strengthen as aggressive cost cutting and the suspension of share buybacks and dividends has rapidly strengthened cash positions. The recent increase in M&A activity is a testament to improving cash positions. Debt servicing conditions are materially better. Credit spreads continue to narrow. Default rates have clearly peaked. What are ratings agencies waiting for to begin the upgrade cycle?
As long as interest rates remain low, why wouldn't continued investments into a credit led recovery make sense? Keep in mind that Gretzky never scored 92 goals in a season again, although he did follow up the 81-82 season with 71 goals in 82-83. Who wouldn't welcome that performance?