Growing Number of Debt Issues Funding Dividends and Buybacks Causes Concern, According to Standish
BNY Mellon Investment Manager Also Cautions Investors on Easing Finance Terms
NEW YORK and LONDON, May 23, 2013 /PRNewswire/ -- Easing financing terms and the increasing number of corporate debt issues to fund special dividends and share buybacks are two developing trends that could negatively affect bond markets, according to the May Bond Market Observations from Standish, the Boston-based fixed income specialist for BNY Mellon.
"Both trends are detrimental to bond holders," said Thomas D. Higgins, chief economist for Standish. "We are avoiding areas of the bond markets where we believe we are not being compensated for the associated risks."
Despite these trends, Standish notes in the May report that it does not see evidence of imminent overheating in U.S. fixed income markets, except for Treasuries. The report also notes the benefits of liquidity created by central banks, including the lowered systemic risk and the rallies in global capital markets.
However, the report points to the diminishing effectiveness in generating real economic activity from successive rounds of quantitative easing. "Such policies may have long-term consequences, which could increase financial instability in the future," Higgins said.
Increased liquidity may raise credit risks by compromising bank underwriting standards or discouraging necessary balance sheet repair and deleveraging as has occurred in Europe, according to the report. It also could lead to a yield-seeking behavior by investors that can push asset prices beyond their fundamental values and create bubbles in the financial markets, the report said.
Regarding Treasuries, the Standish report notes that they are probably the most overvalued of all fixed income assets due to the quantitative easing policies of the Federal Reserve. However, this is viewed as a byproduct of the easing policies to support economic activity, according to the report.
Notes to Editors:
Standish Mellon Asset Management Company LLC, with approximately $167 billion of assets under management, provides investment management services across a broad spectrum of fixed income asset classes. These include corporate credit, emerging markets debt (dollar-denominated and local currency), core / core plus, tax–sensitive, short duration, stable value and opportunistic (U.S. and global) strategies. Standish also offers full service capabilities in insurance client strategies and liability driven investing. The firm includes assets managed by Standish personnel acting as dual officers of The Dreyfus Corporation and The Bank of New York Mellon and Alcentra NY, LLC personnel acting as dual officers of Standish.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.4 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 36 countries and more than 100 markets. As of March 31, 2013, BNY Mellon had $26.3 trillion in assets under custody and/or administration, and $1.4 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.
All information source BNY Mellon as of March 31, 2013. This press release is qualified for issuance in the UK and US and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Investment Management (US) and BNY Mellon Asset Management International Limited (ex-US) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. Registered office of BNY Mellon Asset Management International Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorized and regulated by the Financial Conduct Authority. A BNY Mellon Company.
SOURCE BNY Mellon
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