As I've noted previously, investors continue to show their preferences for shorter maturities and higher quality bonds. Dan Fuss of Loomis Sayles echoed this sentiment over the weekend in Barrons.
CIT's struggles and and a 4th consecutive week of S&P decline are starting to nibble away at credit investors confidence. Combine this with developing seasonal illiquidity and some investors are getting nervous. As Gartman mentions in today's Gartman letter:
…we should also remember, however, that in the course of the past several decades, the most violent market movements have tended to come in late July and early August just precisely because the dealing rooms are emptier. Illiquidity during times of political duress can create its own problems, and we remember the Russian problems of August of a decade ago, and the problems attendant to LTCM that evolved out of that earlier crisis. These were “summer” crises, and there have been others, so just because the doldrums have set in does not mean that they are permanent, and that they cannot develop into something far more unstable. They can; they have and they will… we simply know not when.
Throughout most of Q1 and part of Q2, I mentioned the demand from equity investors for liquid lower priced corporate bonds. That trend is almost completely over as the average bond price is now over $102 (using JPM data).
Bloomberg has an interesting function for those of you that would like to see what equity prices and volatility imply for a theoretical CDS spread (actual CDS spreads are there for comparison). Type WMT Equity [key] OVCR [go] to see the output (for WalMart obviously). Not all equities are available and the CDS pricing is not perfectly accurate intraday. However, you can sort by outliers (far right column).
Vanity Fair has an interesting article written by Michael Lewis about AIGFP's Joseph Cassano.
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