Has anyone ever really been surprised when Goldman 'beats expectations'? Spreads were initially a bit skeptical but have since moved slightly tighter. Speculation of a CIT 'rescue', higher equities and a lower Vix are the levers today.

Goldman spreads were ~5bps tighter but are now back to unchanged. Here's a quick snapshot:

JPM ~100

WFC ~140

GS ~145

BAC ~195

MS ~195

MER ~220

Citi ~385 (today's outperformer tighter by ~10bps)

There are 2 regulatory stories that rolled this morning that are of interest. One, the Justice Department is investigating the credit default swap market. Markit Partners, the dominant provider of index and pricing services, first received and disclosed this inquiry. My pure idle speculation leads me to suspect that they may be concerned about Markit's said dominance and ownership by the broker/dealers (who's oligarchy of the CDS market has also come under scrutiny). The second story pertains to the rating agencies. The SEC has decided that they might need some oversight. This is the same agency that was told repeatedly, in detail, about Madoff's pyramid scheme and did absolutely nothing.

Given the turmoil in the finance sector, it's not surprising to see some of these issuers fall into high yield. This is causing some head scratching for the high yield folks as they are unaccustomed to a large finance presence in their index. The finance weighting in the Barclays index has grown from 8.6% to 12.1% and Citi predicts it may end up at ~22%. The natural inclination would be to ignore them as few finance companies remain standing (in high yield) for long. However, this year's eyepopping returns will create some tracking risk/error.

On the investment grade side of things, there are some similar technicals in finance due to consolidation. Yes, it helps the sector's credit ratios (due to cost savings) but it creates larger index weights which can bump up against issuer maximum concentrations. So, in theory, you could like a finance co and it's attractive spread but cannot add to your existing position.

I'm a bit concerned that credit curves have gone back to inverting over the last month. I'm also a bit wary of the spread between BBB and single A rated credits. When risk demand is healthy, that spread compresses. This year, it has compressed ~130bps. However, the spread between the two is now steady at ~100bps which leads me to believe that the demand for relative risk has subsided a bit.

Despite the earnings releases, there are 2 deals in the market this morning. One is a small high quality deal from USAA and the other is a lower quality deal for Carefusion. The USAA deal was met with great demand and quickly closed highlighting the bias for higher quality in the market.

The US market has seen several auto parts makers file for bankruptcy this year. Perhaps they should adopt this unique French tactic of blowing up their own plant?