Daily Commentary

Today should be another quiet day of slightly tighter spreads with little economic news and a subdued new issue calendar. This subdued mood is apropos for a rainy week on the east coast and the Yankees losing their 8th straight to the Red Sox.

This week, the credit curve continued it's healthy steepening by 4 basis points....it's still inverted by 7bps (CDX 5yr vs 10yr).

So far, we've had ~$11.4B in issuance this week with little scheduled for today.

Major treasury auctions are few and far between in the next 2 weeks which is driving treasury volatility lower for 3 of the past 4 days. It's still quite elevated from earlier this year. The WSJ is reporting today that the Fed is unlikely to be making any more major bond purchases.

In one stark sign of demand for credit, the PIMCO high yield closed end fund is now trading at ~50% above it's NAV. You can enter PHK Equity NAV on Bloomberg to see this.

I've heard more people on trading desks talking about this story than any other. It's the story of a little Texas brokerage firm stuffing a few major CDS dealers at their own game.

The S&P and the major credit index, CDX, are showing quite a bit of divergence....up to a 2.5 Z score (for 1 year trailing). CDX is predicting an S&P of ~1250 or the S&P is predicting a CDX of ~190 (vs last close of 126).