A predominance of red numbers on the global equity scoreboard combined with a sloppy commute for most folks in the northeast has the animal spirits in a foul mood this morning. Thus, spreads are opening weaker.
Here's how the credit markets reacted to MRK's acquisition of SGP.....MRK spreads are ~30bps wider to ~85bps. SGP spreads are ~40bps tighter to ~125bps.
Ken Lewis thinks BAC will be profitable for Q1 and all of 2009.
The FT has 2 interesting articles this morning. The first tells of how at one point AIGFP (financial products) had ~$307 billion in risk that was only generating ~$156 million in revenues. I'd label that 'a suboptimal risk/reward ratio'. The second explains why corporate bonds will be the asset class to choose going forward due to a much higher yield (both absolute and relative to equities), a natural shortage heading into heavy demand and a pseudo government guarantee. They also note an impending drop in liquidity (a thesis I've long espoused) due to the dwindling number of prop desks and active hedge funds.
The article in the WSJ about the credit markets seemed a bit simplistic and slightly misleading due to their over-reliance upon bond prices and yields and not spreads or relative valuations versus other asset classes.
GE is bringing a huge government backed debt issue sometime today or early this week. Investors are starting to worry about the demand buckets (for shorter gov't guaranteed deals) being full already.
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