That all being said, technical demand remains strong (just not today!). There has been $175B in maturing bonds in the last 6 months in finance names alone....couple that with $125B in coupons paid (across all sectors) and that creates one big pile of cash that must be put to work. The tail wind of investor inflows on exacerbates this.
Yesterday was actually quiet on the new issuance front for the first day in quite some time with only some small deals (SNA being one of them).
Gold just broke through a $1000....does that still matter when the CRB is at multi year lows?
The NY Fed reports that dealer positions in corporate bonds (not just credit, includes some agency and structured product) is at the lowest point since 2003. Their holdings are down ~60% since Oct '07 alone. This is further data backing the massive shift in liquidity from a dealer principal market to an agency trading market. Some will tell you that liquidity is just fine and cite the TRACE overall market volume data....but if you take out recent new issues, you'll find that it remains weak. When new issue volume is heavy, overall secondary volume will 'look' heavy too....but liquidity remains very concentrated in large recent new issues. As a reminder, while the agency model does get trades done....it typically takes longer as the orders need time to get worked and shown around. That latency is difficult to quantify and gets lost in any volume numbers.
High yield and investment grade spreads have recently de-coupled. JPMorgan has a great graph in their recent Credit Markets Outlook showing 3 cohorts....2 with 90+ R squareds....and the third most recent cohort with an R squared close to 0. The nationalization of the banks is likely to be the primary driver here.
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