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Private Equity/M&A How They Drive Stock Returns And Corporate Bond Issuance
Record M&A activity is reducing the supply of stocks available which is pushing prices higher. To finance these transactions, corporate bonds are being issued in record amounts. Thanks to highly liquid tools such as CDS, and investor’s penchant for risk, heavy supply is not demanding wider spreads. Keeping spreads low is encouraging more deals, which further reduces the float of the stock market resulting in higher stock prices. Higher stock prices result in investor willing to take more risk, thus keeping spreads low.