Daily Commentary

With few other cues to guide spreads they are following global equity markets better this morning. On one hand you have a holiday shortened week that typically sees little supply and falling volatility (Vix, MOVE). On the other hand, you have a month and quarter end which can lead to quite odd technicals in the market. We may see some headlines on Wednesday from the State of California as they threaten to start using IOUs as payments.

AMG mutual fund flows showed a small weekly outflow from high yield breaking the streak of 14 consecutive inflows.

In light of pending bank/broker earnings, the FT has an article about how strong performance from sales/trading/capital markets will outweigh struggling legacy assets on the balance sheet.

Altman is predicting that default rates will rise from their current ~7% to a high of 14%, recovery rates will settle in the low ~$20s and high yield spreads will rise to ~1200bps over treasuries.

You've likely noticed my bemusement over the rating agencies and their new fangled 'enhanced' approach to rating securities that they completely missed in the downturn. Here S&P tells us how they will now require ~20% credit enhancement for CMBS securities to be rated AAA. This is up from ~12%. Perhaps they've noted that commercial real estate looks a bit squishy? Do not underestimate the impact this change will have on the securitized markets.

Apparently Michael Jackson's financial dealings were not as simple as ABC.