- It’s hard to overstate how illogical it is when swap spreads are inverted. That’s because it suggests that governments are less creditworthy than the very financial institutions they bailed out during the credit crisis just seven years ago. And as the Fed prepares to end its near-zero rate policy, those distortions are coming to the fore.
Is it? A) The majority of FICC transacting is between finance institutions, and thus has little to do with the "real economy." B) Corporate bond raises, especially recently, have little to do with raising capital to fund projects. Most of them have used the proceeds to pay dividends, e.g. Apple's multi-billion dollar recent raise. As it turns out, the majority of companies that are big enough to issue safe bonds are self-financed, and when they issue bonds it's at the insistence of the finance people (including shareholders), not the product people. I agree with the assessment that the real economy is what matters, but I disagree that the bond market exists to support it.“The role of the bond market is to provide funding at the right rates for the real economy,” Major said. “That’s why the bond market exists -- to help efficiently finance projects, businesses etcetera. If that efficiency is undermined, it’s not going to be a positive thing for the economy.”
I think he's saying that the bond market was intended to exist for those reasons, but that it might no longer be the case. In effect, Major may be agreeing with you, but calls it an 'inefficiency'.I agree with the assessment that the real economy is what matters, but I disagree that the bond market exists to support it.