As Merrill's junk bond index yield crossed the historical low of 5% on Thursday, some senior Fed officials are clearly becoming uneasy. Corporate credit markets are entering bubble territory (see discussion) and up until recently very little has been said on the topic by the US central bank. On Friday Ben Bernanke sent a signal to the markets that the Fed is watching the "reaching for yield" situation "particularly closely".
Ben Bernanke (May 10, 2013) - ... We follow developments in markets for a wide range of assets, including public and private fixed-income instruments, corporate equities, real estate, commodities, and structured credit products, among others. Foreign as well as domestic markets receive close attention, as do global linkages, such as the effects of the ongoing European fiscal and banking problems on U.S. markets.The chart below must give at least some US central bankers a reason to reflect on the current pace of monetary expansion. What "unusual patterns in valuations" will another $1.5 trillion of securities purchases create? The FOMC is likely to have at least some debate on the topic at the next meeting.
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