The biggest news in the credit markets this morning is the tender and new issue from Viacom. The market is encouraged by this as 1. they are tendering for bonds at well above existing prices and 2. they have the confidence in the liquidity in the market to do both a tender and new issue at the same time. This will allow them to more effectively stagger their debt maturities and lower their overall cost of debt. It's interesting to note that RR Donnelly announced a very similar move this morning as well.
The Financial Times acknowledged that annual global corporate bond issuance topped $1T for the first time ever. Yesterday, issuance in the US market perked up a bit to $3.75B.
Keeping with my theme of continued appetite for risk, one should note that lower quality bonds (i.e. BBB rated) have outperformed higher quality in this last week's backup in spreads.
The WSJ had an article yesterday pointing out that CDX has been underperforming the S&P. While it is true and most of their points were largely sound, it's a good time to remind folks a few things about the investment grade CDX index. It's made up of 125 equally weighted names that are voted upon by the dealers on a semi-annual basis. Interestingly, very few of those banks/broker/dealers are represented in the index (if you trade it, you cannot be in it). So, it's got a natural underweight in financials relative to most indices. Also, it's made up of 5 year maturities so it will be slightly shorter in duration/maturity than all the major cash bond indices. I'd like to add that the regression between the S&P and the high yield CDX index is perhaps more interesting....it has a higher Z score and higher R squared and shows that high yield spreads 'should be' much wider (or the S&P should be much higher).
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