JPMorgan notes that the pickup from risk free rates into credit one month ago was ~150%. This now stands at only ~85%.
Dresdner has put out data showing that when all-in yields rise as they are now, inflows into credit funds slow dramatically. This is likely attributable to the fact that total returns fall in that scenario and retail investors often react to short term returns. This technical demand factor has been a major driver of spread tightening.
As many have spoken of, it's 'all about treasury rates'. If you look at the volatility of treasury rates (called the MOVE index) versus equtiy volatility (using the Vix), the correlation since Lehman has been R^2 of ~70-80. In the last month, however, it's fallen apart with MOVE headed much higher. If the Vix moves higher with it....look for credit spreads to widen.
Yesterday we saw ~$3B in fixed rate issuance and heavy secondary volume. Today I've seen CVS and SEE in the market shopping new issues.
Lloyd Blankfein of Goldman made some unusual (for a bank chief) supporting statements yesterday about mark-to-market accounting rules.
With oil rising, I would have thought the archetypal "middle eastern investor" would be still be liquid....apparently not.
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