In January of 2009, the Federal Reserve started buying mortgage-backed securities that would total $1.25 trillion by the time the program ended at the end of the first quarter of 2009. According to an article in The Wall Street Journal, this program led many investors to buy corporate bonds. The author attributes the “rebound in the stock market” to the bond boom that came as a result of the buyback program.
With the buyback program ending today, some people are questioning whether or not the market is actually as strong as it seems. One portfolio manager, Joe Ramos, points out: “If we have an anemic recovery, then most of the market is overrated.” Jim Sarni, another portfolio manager, however disagrees, saying that the demand for high-yield bonds will sustain itself and the market will continue to rally.
Personally, I think that the bond buying will continue for at least a short period, but I think it will stop sooner than bullish investors like Sarni think it will.