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| 13:19:00, May 25, 2007 | |
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 After several years of aggressively rebuilding balance sheets, the U.S. corporate sector has started to re-leverage, which is equity-bullish but corporate bond-bearish. Our U.S. Investment Strategy service noted last week in a Special Report that corporate bond spreads have stayed tight, and the level of bond yields remains low, acting to turbo-charge the stampede to buy/retire equities. The wide gap between equity and corporate bond valuations is being arbitraged and will persist until the valuation gap is closed. If a mania develops like in the late 1990s, then the gap could even move into negative territory. Although such a shift seems a long way off, M&A activity is expediting the re-leveraging, and the financial and investment communities are rushing to take part in this stampede. |
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