Wednesday, April 15, 2009

Daily Commentary

The credit markets seem to be pretty spooked by the UBS earnings as spreads are slightly wider despite the stronger US equity open.

"Precarious" is not the term a CEO ever wants to use during an earnings announcement as UBS's Grubel did today.  Notable was their dwindling prime brokerage assets.  I'm a firm believer, and witness, that clients yanking their prime brokerage money can be the death knell to a firm....witness Bear, Lehman and other close calls.

At the risk of beating a dead horse, demand for credit spread product remains very strong.  Using some simple math, you'll note that, on average, there are $75B in bonds maturing monthly (including coupon payments).  This month alone, there has been only $21B in issuance.  In addition, much of this issuance has been in FDIC guaranteed debt which usually does not fit the target of a credit investor.  Please also bear in mind that Goldman noted they have $164B in cash and 'liquid' securities to invest in distressed assets.

It's no wonder then that HCA is bringing a deal in the high yield market.  The $1B issue will be the largest in 6 months....and at the tightest market spreads in 6 months as well.

The Vix remains tantalizingly low....approaching the September pre Lehman blow-up levels.  Historically, that has bode well for credit spreads.       

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