Daily Commentary

Wider swap spreads and a higher Vix are pushing credit spreads wider this morning. Quite obviously, the Vix is higher thanks to yesterday's weakness in the equity markets. However, one will note that the gap between the Vix and the MOVE (US Treasury volatility), noted earlier, is indeed narrowing. One investor has made an enormous bet that the Vix will continue to spike.

Proposed regulation for the ABS market is likely to be sending shivers down many spines. One of the proposals is to start reporting ABS trades on the TRACE reporting engine. As I've noted many times, TRACE killed the dealers profit margins for corporates driving their exodus from that market (at least as far as dedicated capital). Regulators think that transparency brings liquidity to some sectors, I think the exact opposite is true. Here you can read Geithner and Summers 'case for reform.'

Given the rally of the last month in spreads and the more recent shorter rally in US Treasury rates, it's helpful to note that all-in yields have fallen almost 50 basis points in the last month. This will obviously diminish the overall attractiveness of the market especially to insurance accounts.

While secondary volumes were light yesterday, new issues have about a 2 week window before the 4th of July and earnings season. So, yesterday we saw ~$5.2B in supply and so far I'm hearing of TITIM, DT, and CMCSA all coming to market.

Hopefully, you will recall that I've noted that the appetite for risk is back. As a result, or coincidence, hedge funds not only had their best month (May) in years but also saw inflows for the first time in 10 months (source - here).

In March, the UK government had a failed gilt auction. Today, they've decided to syndicate their debt (a la corporates) for only the second time ever. The result? Oversubscribed.