Although Corporations, Consumers Feast on Debt, Bond Investors Sense Economy Can Stomach It
NEW YORK -- To some outside observers, U.S. consumers and corporations appear to have gorged themselves on debt. Yet neither sector of the economy seems to be crumbling as a result.</br></br>Among bond-market participants, there is a growing perception, reflected by price action in different fixed-income sectors, that so long as borrowers have obtained cheap financing in a climate of low interest rates, they can stomach a hefty amount of debt.</br></br>Treasury bonds, which have performed well during the U.S. economic downturn, are starting to wilt, while corporate bonds stand to do better if the U.S. economy improves, as expected in 2002.</br></br>Even those Treasury-market strategists who had been consistently warning about an impending meltdown of consumer spending are changing their tune in light of stronger economic reports in the past month.</br></br>"If there was going to be a day of reckoning for the consumer, I would have thought it would have happened by now," said Mary Ann Hurley, senior Treasurys trader in Seattle for brokerage D.A. Davidson. Consumers account for roughly two-thirds of U.S. economic activity. Ms. Hurley sees "selective" opportunities in riskier corporate bonds whose valuations benefit as consumer spending gears up.