Daily commentary

Spreads are opening a bit weaker this morning in very light volume.  A heavy issuance week last week combined with a "paralyzing" snowstorm in the U.K. have most investors taking a break from buying.  Factor in a higher Vix and the fact that investment grade spreads have rallied far more recently than other fixed income asset classes (high yield and CMBS [commercial mortgage backed securities]) and you'll have little reason to rally.  

Swap spreads are mixed globally this morning.  As a reminder, swap spreads are the rates at which large highly rated entities borrow from each other.  The higher the rate, the less confidence these entities have in each other.  Wider/higher swap spreads usually mean that the finance names will be under pressure.

The good bank/bad bank 'solution' which was greeted positively last week is now being viewed from a different, more negative, perspective.  Yes, it's good news that the Fed (or TARP) will take some troubled assets of balance sheets....but what if the mark (the price at which they trade) is far below where banks are currently marking them on their balance sheets?  

Credit curves remain flat to inverted.   VZW and WLP recent new issues have come, or will come, with flat curves (see earlier post).

The CDS market continues to shrink (as dealers close out offsetting positions amongst each other...and I suspect they are trying to shrink that portion of their balance sheets ahead of the inevitable attempt to regulate this market.

JPMorgan research shows DHI, URI and AVB equity prices are underpriced given where their corresponding CDS levels have been (high Z scores for their 1 year regression).