Daily Commentary

Tighter swap spreads, higher equities and virtually insatiable demand are pushing spreads tighter again today. The credit market is viewing the CIT debacle as isolated and having virtually no systematic risk or impact. Aside from CIT bonds being down $10-15 the only other impact that I can see, or suspect, is the pick up in the MOVE treasury volatility index. The 3 month regression of credit spreads (using CDX) vs the S&P has them both at about fair value.

JPMorgan's recent credit investor survey showed 94% of investors were increasing, or holding firm, their allocation to high grade bonds. This confidence is why the negative basis continues to narrow; cash bonds have outperformed their own CDS almost ~185bps since the beginning of the year. The dearth of new supply is obviously accelerating this too.

Despite the current low supply, the corporate new issue market is clearly functioning quite smoothly. I am encouraged to see some signs of life in the securitization market as witnessed by this recent AmGen Finance deal from CSFB; especially as the underlying loans are not government backed or guaranteed.

Many, including me, are talking about Goldman's quarterly VaR figure released recently. This blog makes an interesting point; that VaR figure is pretty small in relation to the number of >$100mm trading days. They note that Goldman has requested exemptions from the SEC and permission to use non-traditional VaR measures.

We all remember the 'double secret probation' from the movie Animal House....it seems like the US regulators are now applying similar punishments to both Citi and BoA.

The former corporate strategist at Bear Stearns, Steven Begleiter, has made the final table at the World Series of Poker to be played on November 7th. He's guaranteed at least $1.26mm with a chance at $8.5mm top prize.