Fallout: The Financial Crisis

Stock and bond markets disconnect

Marketplace Staff Mar 27, 2009
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Fallout: The Financial Crisis

Stock and bond markets disconnect

Marketplace Staff Mar 27, 2009
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TEXT OF STORY

KAI RYSSDAL: If you looked only at the stock markets this week you might have thought better days would soon be upon us. Until today the major indices were having quite the rally. But as is often true with Wall Street, what you see doesn’t reflect all there is. Equities have indeed been on a tear. But that optimism hasn’t held true at all in the bond markets. It is still every bit as expensive to borrow as it was before stocks bounced. From New York, Ashley Milne-Tyte reports.


ASHLEY MILNE-TYTE: If you want to compare the markets to people, the stock market’s a bit like a teenager — a short-term thinker who’s easily influenced. The bond market on the other hand is a much more sensible type with a few grew hairs. Bill Schmick is an investment adviser with Dion Money Management.

BILL SCHMICK: A bond, for the most part, is going to attract someone with a long, long-term view, simply because when you think of a bond you think of ten year, 20 year, 30 year bonds.

He says unlike many stock investors, bond holders lock up their money for such long periods they dig deep into the finances of their chosen companies.

SCHMICK: Bond players basically have to be shown — show me the money, show me the numbers.

They’re not happy about the numbers they’re seeing now. Marilyn Cohen is president of Envision Capital Management.

MARILYN COHEN: Basically the bond market has seen massive amounts of downgrading, we are already seeing a ton of bankruptcies by corporations and there’s going to be many, many more.

That’s depressing confidence in the economy, she says, and pushing investors to demand sometimes painfully high interest rates.

COHEN: There have been companies that have been you know maybe triple B plus, below A-rated, and they have had to pay you know anywhere between 8 to 9 percent.

The more interest those companies have to pay out the more difficult it is to grow, to hire and even to operate. Cohen says the financial mess began with the credit markets. She says we shouldn’t celebrate until they recover.

In New York I’m Ashley Milne-Tyte for Marketplace.

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