The End

Well, it's over. My time on the beach as a blogger has come to an end. I've decided to re-join the ranks of the gainfully employed and I'm pretty confident my new compliance department will not take kindly to my predilection for blogging.

So, thank you all very much for actually reading it and thereby forcing me to think hard about the credit markets on a daily basis.

Keep up the vigilant curiosity, avoid bland certainty and aspire to regular critical self reflection.

Daily Commentary

Spreads are tighter this morning following China's big equity move and an 'as expected' ECB leaving rates unchanged. Secondary volumes are actually about normal while the new issue calendar is fairly light. We did see >$4B in issuance yesterday; the bulk of which was a series of issues from Westpac. So far, no new issues in the queue and I'd be surprised if we saw much ahead of tomorrow's US payroll number. I am encouraged by the recent steepening in the credit curves. It may be solely in reaction to the flattening of the underlying US Treasury curve but it's a healthy sign nonetheless.

Please note that the main credit index is about to roll. The new constituents for CDX #13 have been chosen and it will start to trade on September 21st. Initial analysis has the new index trading ~16bps tighter than the current one.

I was a bit surprised to see S&P putting >$5B in corporate loan CDO's on creditwatch negative; perhaps I was a bit naive in my belief that the worst had passed us by.

Warren Buffet seems to believe that the worst has past in the mortgage market as evidenced by his recent purchase of Capmark's mortgage unit. Spreads in BRK paper did not react much at all.

While the ECB remains unchanged, the FOMC has "considerable uncertainty" about the strength of the economy (minutes here). This leads me to wonder why Fed governor Plosser was on the tape predicting that rates will have to rise "very rapidly".....he did, however, add a codicil of "if the time is right."

While I'm generally pretty dismissive of most financial tort lawsuits (being a believer in 'caveat emptor'), this recent suit has some interesting tenets. The rating agencies are claiming their opinions are protected under "free speech". Well, this particular judge does not believe that defense is adequate and is allowing a class action lawsuit to proceed against them. Here's the Bloomberg story.

If you can survive the first few paragraphs about golf, Bill Gross does eventually get to what he believes is the 'new normal' for the financial markets in his recent monthly outlook.

Here's some more interesting Labor Day weekend reading....in which the SEC rails at the SEC for not catching Madoff...even Madoff himself was surprised he didn't get caught.

Daily Commentary

Spreads are still slightly weaker despite a higher ISM Manufacturing number. We certainly feel rangebound in this last summer week. Yesterday's month end (daily) volume was very low versus previous month ends.

Market participants all seem to be awaiting the determining factor of September supply. As JPMorgan notes, supply could be heavy given attractive all-in yields for the issuers and impending October earnings blackout. Countering that are the already high cash on balance sheet levels and moribund capex spending. Plains All American Pipeline is the only new issue queued up this morning.

Here's a marketing piece from PIMCO where one of their portfolio managers notes their concerns about declining recovery values in credit (via Blooomberg news).

The volume of stories about current or pending CMBS defaults seem to be approaching a crescendo. Here's the latest from Bloomberg news.

AIG credit is getting whacked just as badly as the equity post Bernstein downgrade and lawsuit dismissal.

Those traders at RBS really stayed glued to their desks don't they.....oh wait, those are protesters who have glued themselves to the desk. (via FT/Alphaville)

Daily Commentary

Weaker global equities have credit spreads following suit. Secondary volume was very very light on Friday and once we get past today's month-end activity, I suspect the rest of this pre-Labor Day week will be light as well. Only one new issue, from Republic Service Group, is in the market today.

M&A is definitely back as 2 deals were announced today. Disney buying Marvel and Baker Hughes buying BJ Services. BHI spreads are ~7-10bps wider on the news and they made a comment on the conference call that if the bond market stays where it is, they'll term out the debt (i.e. it's really attractive for us to fund now). DIS spreads were only a few basis points wider in line with the broader market.

Radio Shack is following the trend of deleveraging and tendering for 1 of it's outstanding bonds at above market prices. To give you equity folks a feel for corporate bond trading, these particular bonds only traded once during June, once during July and once during August in non odd lot size. As one could extrapolate, this throws quite a wrench into the works for those that had bought protection on RSH in the credit default swap market (i.e. a short squeeze).

Speaking of credit default swaps, I've mentioned more than once the existence of an oligarchy that profits quite handsomely from this market. Here is a Bloomberg story about their efforts to lobby against regulation and change.

I've recently noted the potential harmful impact on the banks of the pending accounting rule change with regard to securitized assets. Apparently, the FDIC also recognizes this and is now proposing a phase-in as opposed to a Big Bang.

Yes, this is slightly old news but Bloomberg has a good piece about the leverage at the banks picking up. Speaking of banks growing....here's a Washington Post piece (via The Atlantic) about those banks that were 'too big to fail'...and are now bigger.

Post a failed LBO, there's often loads of sour grapes whining. Here's a piece in BreakingViews about Tribune bondholders claiming fraudulent conveyance.

I missed this piece last week in FT/Alphaville which was a commentary from PIMCO's El-Erian regarding a 'to-do list' for Bernanke for his second term.

Fortune magazine has a longer article about Chris Flowers and the loss of his Midas touch.

Daily Commentary

Spreads are meandering slightly tighter this morning following equities. While I acknowledge it is a summer Friday, I'm surprised that secondary volumes are so light given the impending month end. No new US issues are on tap so far today. Looking at the JPMorgan credit index, the current yield is 5.45% and the average bond price is $105.24.

I'd think the credit markets would have been more encouraged by AIG's new CEO saying that he would be patient with his asset sales. A prudent seller helps all markets...AIG CDS is slightly weaker on the day however.

It's rare to find an enormous disparity between the credit views of the two major ratings agencies Moody's and S&P. Thus today's Reuters story highlighting their current wildly different beliefs about high yield default rates makes for interesting reading.

Recently I noted that Israel was the first central bank in this cycle to hike rates. Contrast this with Sweden which recently cut rates below zero (story here).

Clearly I should not delve too far into global macroeconomic theory given that this story surprised me a bit....the Economist maintains that a country's investment returns are not correlated with it's GDP growth.

While some companies would prefer to avoid their regulators at all costs, others feel it benefits them to be close or friendly. This approach, from disgraced financier Allen Stanford, is taking the latter to a creepy extreme.

Daily Commentary

Spreads are largely unchanged this morning in light volume. On the new issue front, only 1 deal from Praxair seems to be queued up. The recent P&G benchmark deal, which can be used as proxy for the health of the new issue market, remains a few basis points tighter than where it was issued. While secondary volume is off a bit, the breadth of the market remains healthy.

JPMorgan credit research recently noted that EBITDA margins in Q2 were actually above the average of the last decade.

Diageo's CEO was on the tape this morning making comments about his eagerness to make acquisitions; spreads in Diageo CDS were about 5bps wider to the low 70bps area. I note this as it's been quite some time since I've seen any M&A chatter affecting spreads.

The long awaited FDIC rules (39 pages of them) regarding private equity firms buying failed banks have been released (here). As expected, the capital requirement was lowered from the proposed 15% to a more palatable 10%. However, this Reuters Blog astutely notes that it's no longer pure Tier 1 capital (reserve) but rather Tier 1 Common Equity.

Fed governor Lacker made comments (here) that concluded with his intention to revisit whether the Fed should complete it's entire targetted purchase of $1.25T of mortgage backed securities. This is likely to raise many eyebrows amongst the mortgage crowd. In theory, most investors disapprove of any government intervention in the markets....while in practice, everyone privately likes it when the government artificially inflates the price of securities you own.

Given the lack of credit focused news items to write about this morning, I'll delve into mortgages for the second time today. The NYTimes has an article about the enormity of pending mortgage rate resets coming in the next few years that could easily threaten any real estate recovery. BusinessInsider's Henry Blodget also has some graphs on the same matter (here).

Buttonwood from The Economist has a short posting here about the debate whether private equity owned firms outperform public firms.

Daily Commentary

The market is suprisingly resilient for a late August day. Spreads are unchanged to slightly wider but secondary volume and breadth are quite healthy. I would like to reiterate, however, that credit spreads have definitely lagged the rally in the S&P since early July.

The new issue market is performing well with a large issue yesterday from P&G (which is slightly tighter in the secondary) and new issues today from Westfield Group and Roper Industries. Roper is barely investment grade rated yet the deal is several times oversubscribed.

Zerohedge has posted a copy of a letter to the SEC attributing blame for the money market fund problems clearly on the rating agencies. While this in itself is no shocker, the fact that the author of the letter runs a rating agency himself is unusual...as you can imagine, he largely points the finger at his competitors.

Looking at the DTCC data, I did notice one data point that was out of line with much longer term trends. Gross index outstanding has actually picked up for the first time in a long time; growing liquidity in that index bodes well for the market. Before the credit crisis, you could easily do a $2B trade, on the wire, with little impact to the market. During Q1, that liquidity dropped to $25-50mm but has gradually crept back up to $500mm-$750mm size markets.

This slightly dated article from the NYTimes draws some comparisons between GE and Enron with regard to their earnings management (aka manipulation). It quickly reminded me of one of my favorite contrarian articles of all times from Malcolm Gladwell in the New Yorker (here). In it, he argues that all of Enron's financial information was publicly available for those willing to solve a very very complex puzzle.

Commercial real estate is still struggling. However, some may point to the recent drop in delinquencies (the first since August 2008). Realpoint Research (via FT Alphaville) notes that it's simply a technical due to a large amount of GGP backed loans temporarily returning to 'currently paying' due to modifications.