Morgan Stanley and George Soros both recently insisted that the bear market is not over. I thought George Soros officially lost relevance in 1998 when he declared capitalism as flawed.
A steady Vix, mixed swap spreads and bullish comments from the ECB (about possibly buying corporate debt) are usually enough to push spreads tighter. I've heard from a few folks that there is a large SIV (structured investment vehicle) unwind going on in the market which may be enough to tip the scales.
Usually we hear about tighter regulation from politicians and aggrieved investors. However, today we're hearing about tighter rules for money market funds from the investment managers themselves. These changes sound likely to go through which will cause for further dislocations and odd technicals in the very short maturity bonds.....a quick drastic flight to quality.
The PPIP program from the Fed was announced only days ago....and is now being expanded to include more managers. Almost everything out of the Fed now feels ad hoc and soon-to-be duct taped.
There was some scary default data released recently. High yield recovery rates (what's left after bankruptcy for creditors) have been ~10 cents for bonds and ~25 cents for loans this year; last year those were 39 and 55 cents respectively. Moody's noted that their speculative grade default rate in Q1 was 7% (vs 1.5% Q1 '08). They predict a peak of 15% during Q4 '09 with a 'recovery' to 12% in Q1 '10. Remember that the credit market currently has a 45% default rate priced in to the market so buy buy buy. (JPM data; assumptions of 20% recovery rate, 10yr cohort).
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