The U.S. central bank has pledged unlimited financial asset purchases to sustain market liquidity, increasing its balance sheet from US$4.2 trillion in February to US$7 trillion today.While the vast majority of these purchases have been limited to U.S. Treasuries and mortgage-backed securities, the Fed's pledge to bolster the corporate bond market has been enough to spur a frenzy among investors for bonds and stocks.
Since their bottom on March 23, the S&P 500 and the Dow Jones Industrial Average have both risen more than 40per cent and the Nasdaq composite has gained nearly 60per cent. The S&P 500's forward price-to-earnings ratio is currently 21.5, a level last seen during the dot-com boom 20 years ago.The stock market euphoria has spilled over into initial public offerings and other stock sales to investors.
Some US$1.2 trillion of investment-grade paper was sold in the first half of the year, the highest issuance volume recorded by the Securities Industry and Financial Markets Association. Even though the Fed refrained from buying most junk-rated bonds, issuance was at US$200 billion through June, more than double last year's rate.
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