NEW YORK (
) -- As investors and economists handicap how the
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
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
(WFC - Get Report)
Bank of America
(BAC - Get Report)
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,
went from the threat of bankruptcy to a buyout target as it
readily found investors
to meet its cash needs.