Daily Commentary

The trends that were in place when I went on vacation remain firmly there upon my return. Strong demand continues to drive spreads tighter and support a healthy new issue market despite lower overall yields. I could go on with other indicators...LIBOR at historic lows, TED spread is back to pre-crisis levels, and lower quality paper spreads are collapsing towards higher quality names.

Using mutual fund flows as a proxy, demand for high grade bond funds was ~35% above average for the last 2 weeks. This is mirrored by outflows being ~35% above average for money market funds over the same time frame. Bloomberg News noted that corporate bond issuance in Europe has already hit an all time annual high of $1.1T even though we've just entered August. Just today, GE announced a deal in the US and demand was >$2B within approximately 30 minutes of the announcement.

The Atlantic Magazine business blog has a comprehensive post about the possible tightening of mark-to-market accounting rules and how this could have a large negative impact on the banks. Please note this post in March noting the easing of these rules....was it coincedental that this was around the time that the lows in the market were set?

Malcolm Gladwell wrote an article in the most recent New Yorker about how the psychology of overconfidence may have driven, or exascerbated, the credit crisis.

The exodus of experienced salesmen and traders from large investment banks to agency-only or boutique shops is well known within the community. Here's Bloomberg's take on the shift....I have a quibble with the use of the term "fired" in their title as many of these folks left on their own volition.