CVS Health Corp. sold $40 billion of bonds on Tuesday to help fund its $69 billion acquisition of Aetna, which is still pending regulatory review that may conclude later this year... Yet there was strong demand: $120 billion in orders for $40 billion in bonds. The deal was offered in seven tranches. According to investors, the 30-year portion sold with a yield of 1.96 percentage points above the equivalent Treasury yield.


In addition, the US Treasury Department will issue large amounts of debt to cover the ballooning federal deficits.

And in addition, the Fed has raised rates four times since December 2016 and will likely raise rates three or four times this year, and more next year.

So CVS tried to get its bonds sold before all this hits the fan. Because bond buyers -- mostly institutional investors, such as bond funds and pension funds -- are still in denial. They're still chasing yield, especially those speculating on the riskiest corporate bonds.


The Fed will succeed in tightening financial conditions. It always does. And when this starts to click, the adjustment will be sharp and possibly harsh for those companies that have relied on cheap and easy money to fund their operations. But for now, investors are still blithely oblivious to the coming reckoning in the corporate bond market.

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