Daily Commentary

Sunny summer Fridays clearly induce torpor. Spreads today are holding about unchanged and I suspect we'll see declining volume for the rest of the day. With returns topping 13% YTD and yields having declined >50bps in the last month, I would not be surprised at all to see a pullback despite the demand we've been seeing.

There is little in the new issue pipeline for the day. However, yesterday saw a fairly interesting name come to market....Blackstone. This is their first foray into the public debt markets. One should note that when they issued equity in June '07, the S&P was at 1502...not far from it's all time high of ~1560. Take a look at these disparate but comparable debt issues and current mid market spreads:

Blackrock ~145 A1 rated

Fidelity ~290 A1 rated

Blackstone~310 A1 rated

Eaton Vance ~270 A3 rated

Lazard ~355 Ba1 rated (high yield at Moody's)

CIT has come to an 'agreement' with the Fed (here) that they will have a re-capitalization plan in place within 15 days. In the old days (i.e. '07) , bankruptcy court handled something like this, not the Fed. Nostalgic waxing aside, spreads were unchanged to a touch better. November 2009 debt is now trading ~$72. If you're a bull, try the subordinated 2018 bonds now available for ~$26.

Given lack of real news to write about, I'd like pontificate about the matter of banning naked shorts in CDS. While this is a very easy and popular subject for the politicians to support, I don't believe it can or will happen. First of all, they've only recently begun an effort to truly oversee, monitor and regulate this market; potentially imposing a complex revolutionary rule is way down the road. Common equities are a fairly homogeneous security and thus easier to impose a short selling ban. Credit default swaps are very heterogeneous as are the underlying corporate bonds they are attempting to mimic. Will I be precluded from hedging the market using the CDX index if I do not own each of the 125 names contained in the index? If I own a 3.5 year bond from XYZ corp but want to hedge it with a 5 year default swap, is that a prohibited naked swap because of the maturity mis-match? If own Boeing Company debt but see that Boeing Capital default swaps are a cheaper hedge, will that be allowed? I know that simply pointing out problems is not an adequate defense against the measure. However, the government has neither demonstrated an ability to comprehend this market nor elucidated it's support for interfering with free markets.