Salient to Investors:

Enthusiasm for speculative-grade bonds is at unprecedented levels – a Credit Suisse index is at a record-low 5.9 percent.

Kansas City Fed President Esther George said prices of assets such as bonds, agricultural land, and high-yield and leveraged loans are at historically high levels.

Drew Matus at UBS Securities said the first sign of Fed tightening may set off a hair-trigger in the bond market – when the Fed begins to shrink its portfolio, investors will start to price in the entire stock of bonds coming back into the market.

The Center for Financial Stability said the price investors are paying for income from bonds versus stocks is close to the highest level since 1920 – 54 times the value of the bond income versus 14.8 times earnings for the S&P 500.

Farmland prices in the Kansas City Fed’s district  set records in Q3.

Lawrence Goodman at the Center for Financial Stability said there are extreme market distortions occurring due to the unusual monetary policy.

Phillip Swagel at the University of Maryland said the Fed is still mostly looking to support the economy, so to take action to head off financial sector froth when the economy is weak is very difficult.

Richard Barwell at RBS said policy makers are right to worry about the risks to financial stability from large-scale asset purchases because there is a delicate balancing act between providing stimulus and encouraging investors over-stretching themselves.

Sheila Bair at The Pew Charitable Trusts said bank regulators don’t always act quickly enough to defuse challenges to financial stability and there is still too much inertia among supervisors of financial firms.

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