Daily Commentary

Spreads are opening up wider this morning. While I could cite mixed global equity markets, I suspect it has more to do with rising 10 year yields and the rating agency S&P.

On the same day that 10 banks paid back their TARP funds, S&P downgraded 18 banks with 5 of them going to junk. Not surprisingly, bank spreads are wider this morning (but off their wides). Yes, I acknowledge that the TARP payers are mega-banks while the S&P targets were much much smaller.

Somewhat thankfully, S&P announced it's AAA rating for the United States is safe for some time.

On the matter of the 10 year and it's yield, a few pundits are predicting continued higher yields.....Dan Fuss of Loomis Sayles is predicting a 6.25% yield in the next 4-5 years.

The new issue market remains subdued with LO and LNC the only notables with 'live' deals pending.

For you equity folks watching the rally in HMO stocks, please note that their spreads

are not following suit tighter.

While I should have noticed this yesterday, I am very surprised to hear that the rating agencies were largely left untouched in this proposed financial regulation overhaul.

This is a thoughtful, and wordy, perspective on how AAA rated 'risk' became a proxy for systematic risk and when participants realized that there was only a 1 way trade in that 'risk', the panic set in.

The New Yorker's James Surowiecki has an interesting article about the impact, or lack thereof, of oil prices on the broader economy. One excerpt:

"historically, sharp spikes in oil prices have sent consumer confidence plummeting, and have led to outsized cutbacks in general consumer spending. This makes sense: gasoline prices are the most publicly visible prices in the economy as a whole—no other prices are displayed on the street in bold, two-foot-tall numbers—so it’s not surprising that they have a disproportionate impact on the way people feel."