The M&A market has caught fire with a series of jumbo corporate deals. Bidders claim that these are compelling strategic transactions that will create long-term value. But the real reason may be fear that shareholders are now focused on weak revenue prospects. Buying earnings is a way for companies to prevent share prices that low policy rates have inflated from falling back to earth. But confidence is still surprisingly fragile. A couple more big deal failures could slam the M&A market back into the freezer and take the equity markets with it.
Regulators have been strident, if rather late, in their concern over the risk that short-term retail money now represents in today’s high yield corporate bond market. So when retail funds began to sell off in late July many braced for the worst. But by the end of August it was as if nothing had happened. The bond market’s ability to adapt may be greater than Federal Reserve chair Janet Yellen believes.