Morgan Keegan Is Cautious About Corporate Bonds

Kevin Giddis of Morgan Keegan says that he is worried about the signs coming from corporate bonds market. Morgan Keegan says that high yield spreads have tightened themselves almost to pre Lehman numbers. In March they were at around 600-700 base points above Treasuries, and now they contracted to 800 points, while at late 2007 they were at 600 points over the Treasuries. The important question, according to Morgan Keegan, is how much these spreads can tighten before we hit a real danger zone and high yield.

Morgan Keegan is also concerned about defaults because they tend to lag the economy, and if we haven't seen an economic rebound, we haven't seen a lot of defaults yet. They expect upper zone double digit default rate. When asked about how the recovery will look, Morgan keegan says that they see a chance of double dipping and also a chance that recovery will be very slow.