Salient to Investors:

FRB Governor Jeremy Stein sees a significant pattern of reaching-for-yield behavior emerging in corporate credit, which bodes ill for expected returns to junk bond and leveraged-loan investors.

David Tawil at Maglan Capital said the bulls will continue to run despite the loud chorus that this is crazy because there’s nowhere else to put money in fixed income. Tawil said the government will continue to fuel the market and keep rates low enough for long enough that the economy builds up enough steam, but the economy may not be capable of picking up the necessary steam.

Morgan Stanley said sales of covenant-lite loans represented 55 percent of the debt sold to non-bank lenders in January, the greatest proportion ever.

Adam Richmond at Morgan Stanley said valuations are rich, and the pendulum is swinging in favor of issuers as the peak in credit quality is behind us.

Dan Fuss at Loomis Sayles Bond Fund said high-yield is the most overbought he has ever seen, and at ridiculous valuations.

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