Daily Commentary

There is little market driving news coming specifically out of the credit markets today so spreads are simply reacting, wider, to lower equity markets.

The pending bank stress test results and earnings are the primary subjects of conversation today.  The stress test criteria are supposed to be released this Friday with the results in early May.  However, if you'd like to see the alleged leaked results of the stress test, see this blog which has pretty grim results.

We're seeing a mini-spurt in issuance of a new type of bond called Build America Bonds (aka BAB).  This is very similar to what used to be called taxable muni's....where some portion of the coupon is tax deductible.  This won't necessarily impact credit spreads too much but could tighten muni spreads as some of that supply will hit the credit markets.

The inspector general for the TARP is concerned about the potential for abuse in the pending PPIP program.  See page 147 here.  

For a credit spread rally to become sustained, 'real money' needs to be buyers of off-the-run cash bonds (i.e. not only new issues or CDS).  The collapse of the negative basis inside -200 is another good sign that this rally could hold.  That basis has been in a negative 220 to 250 range for quite some time.