This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Bernanke Feeding Market a Junk Debt Diet: Street Whispers

Stocks in this article: WFC BAC SVU S BBY BMC

NEW YORK ( TheStreet) -- As investors and economists handicap how the Federal Reserve's third round of easing has impacted stocks, housing and the wider economy, some key markets are already seeing a big impact... and they're not the ones Fed officials are likely focused on.

Most notably, a Monday analysis by Fitch Ratings shows that the market for the riskiest corporate bonds is rallying to one-year highs as the Fed tries to stimulate economic activity by chasing investors from safe assets and into investments like stocks and real estate, which could help boost a stalling economic recovery.

While Fitch Ratings sees a direct connection between the Fed's newest policies and surging demand for dicey bonds labeled 'junk,' weak overall signals of economic and jobs growth seen in recent data are unlikely to comfort Fed officials as the prepare to discuss monetary policy on October 24.

In a Monday report on debt markets, Fitch Ratings notes that the issuance of the riskiest bonds - loans to corporations with a rating of CCC or lower - has surged to 2012 highs as Fed policies drum up investor appetite for any investments that carry a meaningful yield. "The share of newly minted bonds rated 'CCC' or lower climbed to 26% of total volume ($38.6 billion) -- a record for the year -- as the Federal Reserve's launch of QE3 further stimulated investor appetite for high yield in the primary and secondary markets," writes Fitch Ratings.

The data analyzed by Fitch Ratings would be a signal that the Fed's expansionary policies are working were the central bank concerned that large companies strapped for cash don't have access to financing. However, in unveiling QE3, the Fed had little to say about corporate borrowing and it stressed the program was designed to lower mortgage rates, which could bolster a nascent housing market recovery, and help impart lower unemployment.

In its program, the Fed said on Sept. 13 it would spend $40 billion a month to buy mortgage backed securities and would commit to keeping benchmark interest rates at near zero levels through mid-2015, in an effort to lower unemployment and spur economic growth.

"If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability," the Fed said.

Since the policy was outlined the S&P 500 Index is marginally lower and there are few signs outside of corporate debt markets that cheap money has made a big economic impact.

Notably, the Fed's purchase of mortgage bonds is seen as helping to keep mortgage rates at or near record lows. Recent earnings by banking giants like JPMorgan (JPM), Wells Fargo (WFC) and Bank of America (BAC) indicate housing activity and, in particular, refinancing is surging. JPMorgan's Jamie Dimon called a housing recovery in third quarter earnings in Oct. 12.

For now the biggest positive impact of Fed interest rate policies appear to be corporations under stress and in need of financing - or those that are being pursued by private equity investors. Recently, Sprint (S) went from the threat of bankruptcy to a buyout target as it readily found investors to meet its cash needs.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs