Spreads are meandering a bit wider this morning but with little conviction. The trends of lower volatility, diminished supply, strong demand and cash outperforming CDS continue.
JPMorgan has lowered their year end spread forecast from 275bps to 225bps (that index closed last night at 225). They've long cited strong technical demand but have now gained confidence that a strengthening economy will benefit corporate credit metrics.
Mutual fund flow data showed few surprises this week....flows continue into high grade and high yield bond funds while equity funds showed slight outflows and money market funds continue to shed assets at a heavier pace.
Many have verbalized their fear that foreign purchases of US Treasuries will decline. Here's the treasury data from May.....look at the declining trend in row #3.
That worry does not seem to have impacted any emerging market debt investors....their prevalent index, the EMBI+, hit a new all time high yesterday according to Bloomberg News.
Recently, I noted the wide holdings of CIT amongst CDOs. One rating agency, Fitch, took a bit of a contrarian stance and noted that the impact will be muted....largely as most of the damage has already been done to those tranches at risk.
Here are some more insightful thoughts on Goldman and the use of VaR.
Bloomberg News notes that some banks that are facing AIG with their credit derivatives positions may not force them to pay but rather hold them until maturity. Ironically, this will gum up efforts to clean up AIG's books (despite the benefit of no cash calls).
Does it seem everyone is giddy about credit? Giddy enough to pay a corporate bond salesman a $6mm 1 year contract? Yup, read about it here.
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