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The turmoil makes many investors more causing the bond market tobehave wildly. Historically, a five-year corporates rate bond would trade abouy one percentage point above the yielc fora five-year note. However, today'd market has corporate bonds tradingaboutt 2.25 percentage points "The problem hasn't been supply on the corporate side but risk aversion," said Gary Cloud, a fixed-incomde specialist with "The consumer is the weak link in the chaih in this instance. Corporate Americsa is in good shape, but it hasn't stopped theie bond yields from widening out comparedf toTreasury yields.
It's a sign of risk aversiojn when investors demand higher rates from what is generally considereda high-quality instrument backed by corporatw credit." is one Kansas City-area compan y that has been caught in the middle of the bond markeg turmoil. The Overland Park-based which manages (NYSE: TYG) and (NYSE: experienced failed auctions for some of its preferref shares and senior notesin February. Terry managing director of TortoiseCapital Advisors, said the auction-ratwe instruments had rate caps tied to the Londojn Interbank Offered Rate (LIBOR). As the benchmarok rate dropped, it made the rate caps so low that investorsastopped bidding.
Matlack said the caps are there for a creating an opportunity for Tortoise to study the market and reset itsfinancial strategy. He said Tortoiswe began exploring alternatives tothe auction-rate markets a few montha ago and has refinanced some of the notews for its funds. For Tortoise Energy Capital Corp. used fundsx from an institutional debt placement to redee m securities previously sold in the auctiobrate market. "We intend to continue that effort and expectg it tobe successful," Matlack said. "Ik don't see a world where there is no liquidity but a worldr where there is an opportunity to find investmenr dollars at reasonable prices that alloqfor leveraging.
" Matlack said the typical alternative sources are institutions such as bankz and insurance companies. "We still believe that leveragde is available today from sources whers costs are reasonable enough that it provides accretivr returns toour shareholders," Matlack said. Tortoisew funds have a long-term leverag target of 33 percent, Matlack said. So they are not out in the marke borrowing 10 times theirequity base, as is the case with some hedgew funds. Massive leveraging by hedge funds is a big reasonh the markets arein turmoil, said John president of /Kornitzer Capital Management. He said he thinksz Congress needs to put a stop tothe practice.
"Thw leverage they have out there today is totally Kornitzer said. "Basically, when a hedge fund can have $1 milliohn and borrow $30 million against it, that is 3 percen t margin. The collapse of the stocjk exchange that led to the Greaf Depression in the 1920s was caused by 5 percen t margin ofthe stocks." It's the same storu with the average American buying a home with no moneyh down, Kornitzer said.
Americans need to learmn how to save and to stop living theirf whole life by the mantra of buy now andpay
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