Daily Commentary

Spreads started the day weaker on the news of the delayed stress test results.  Markets can handle both good news and bad news...but not uncertainty.  The just released confidence number, NAPM and employment data should keep the damage capped.  Volumes are light due to European May Day holiday.

Both investment grade and high yield bonds had their best performance month (April) in decades.  Merrill's high yield index was up 9.7% and JPMorgan's investment grade index returned 2.3%.  The weaker rated bonds were the outperformers in both universes.

Given the lack of European attendance, the new issue market is moribund today.  I'm seeing deals from small issues from BP and Rockwell only.  Most recent new issues have performed well with the exception of the deal from BB&T which has struggled.  April saw $59B in new issuance.  So far, year to date there's been $242B in issuance (excluding FDIC guaranteed debt).  Last year at this time, we had had $314B in issuance so the pace is down ~23%.

Credit investors are once again paying attention to yields rather than spreads.  While breaking the 3% yield on the treasury 10yr obviously leads to lower prices, at some point soon the all-in yield (treasuries + credit spread) will again be attractive to other investor classes (think insurance companies).