Daily commentary

The credit markets are opening a bit better today despite grim CaseShiller and consumer confidence numbers. The recent weakness in US Treasury bonds has made the yields on corporate bonds more attractive. More than one participant is telling me that 'non-traditional' investors (i.e equity folks) are in the market buying. The usual suspects are well known TMT names with low dollar prices.

While the new issue calendar is quiet today (away from a BAC FDIC backed deal), recent new issues continue to perform well. The recent FedEx deal is almost 100bps tighter from where it was issued.

The credit curve remains inverted and the slope has been largely unchanged over the last week.

I'm encouraged by the narrowing of the negative basis. The negative basis is a measure of the rich/cheap skew of cash bonds versus their own credit default swaps. If the basis is negative, that means cash bonds are cheap (vs CDS). As this basis narrows (i.e. becomes less negative), that tells me that there is more relative strength in cash bonds. Cash bonds remain the preferred instrument of 'real money' investors. CDS has long been where 'fast money' and dealers make their tactical moves. So, relative strength of cash bonds means they are being bought by 'sticky hands'.

The sales and trading desks of BAC and MER are done with their first round of cuts. Yet another example of liquidity leaving the market....1+1 = <1. Remember, corporate bond trading is a true OTC market....if you remove a market maker (i.e. sellside trader), that liquidity they provided is gone. Poof.

The cheapest sectors in the credit markets right now are REITs, financials, insurance and energy.

The richest sectors are TMT, healthcare/pharma, and consumer.