Daily Commentary

It seems that if we get signs that the economy is weaker, then money moves out of equities and into credit pushing spreads tighter. It also seems that if we get strong economic data, then treasury yields rise making credit look attractive and pushing spreads tighter. Today is following yet a third pattern which is "well stocks are higher so we should be better." This is all a bit alarming as credit seems largely impervious to accepting bad news. The technical demand may be just that strong.

That demand is not currently being satiated by the new issue market. Yesterday saw only one ~$800mm deal. There is a smaller deal from Korean Gas in the pipeline (pun intended).

Try explaining this one to your parents....Morgan Stanley has created a new CLO that is rated AAA. You'll note that the bonds underlying the CLO were recently downgraded 6 notches (from AAA to A3). Ah the joys and benefits of 'credit enhancement.'

Despite the efforts to standardize and make transparent the CDS market, it's issues like the Ciba/BASF succession event debate that keep many traditional real money investors from using CDS.

I don't think I was the only person surprised that PIMCO was not included in the choices for investment managers for the PPIP program. Apparently, they pulled out in June due to "uncertainties." The program was targetted to be $1T in size but so far has had $30B in government support for $10B in private investment.

There has a been a shift of investors recently into higher quality and shorter maturity paper (as evidenced by spreads and yields across the different maturity ranges). This may signal a lessening of the risk appetite within credit (which could pause the tightening).

This is a pretty shocking graph/stat from the NYTimes:

Back in December 2000, there were about 1.1 unemployed people for each nonfarm job opening. In May 2009, on the other hand, there were 5.7 unemployed workers for each nonfarm job opening.

You don't need to tell me that this is clearly a jobless recovery.

Looking at the last 3 months (only), we are starting to see some divergence between credit and equities. Credit is 'predicting' a higher S&P of ~905 while equities are predicting wider spreads (of ~160 vs current ~140).