Daily commentary

Spreads are opening largely unchanged this morning.  I attribute this to several factors.....mixed equities, Friday the 13th, a 6 OT college hoops game that ended ~1am, and a new 'upgraded' YAS function on Bloomberg; traders are creatures of habit and if one of their most popular functions changes, even slightly, expect a brief drop in liquidity as they complain and adapt.

I've long noted the correlation between the Vix and credit spreads.  It seems to be breaking down this year (spreads moving wider while the Vix drops).  While it could obviously revert back to 'normal' in either of 2 ways (spreads tighter/better or Vix higher [equities weaker]), I'm concerned the latter will occur given how rich the CDX index is versus it's intrinsics (~50bps).  Also, geopolitical headlines like North Korea shutting it's borders and the US shooting down an Iranian drone won't help the Vix.  

Take a look at these mutual fund flows YTD:

money markets +$56B

high grade bond funds +$25B

high yield bond funds +$7.4B

equity funds -$60B

Many cite mark-to-market accounting rules as one of the accelerants of this crisis.  FASB has said that they will soon issue 'guidance' on these rules.  As I've said before, if they ease these rules even slightly, we'll see an enormous rally.

Yes, shareholders have taken it on the chin this year to the delight of bondholders.  Now Jack Welch is kicking you while you're down uttering "shareholder value is the dumbest idea in the world."

FDIC is raising it's fees for it's guarantees so we're seeing a relative spurt in financials issuance ahead of this.

You saw retail sales....here's a quick snapshot of where 10yr bonds trade for a few names (remember, higher spreads indicate more yield but perceived weaker credits):

WMT +185

TGT +325

CVS +360

HD +490

LTD +1100

M +1200