Daily Commentary

Spreads are tighter this morning following China's big equity move and an 'as expected' ECB leaving rates unchanged. Secondary volumes are actually about normal while the new issue calendar is fairly light. We did see >$4B in issuance yesterday; the bulk of which was a series of issues from Westpac. So far, no new issues in the queue and I'd be surprised if we saw much ahead of tomorrow's US payroll number. I am encouraged by the recent steepening in the credit curves. It may be solely in reaction to the flattening of the underlying US Treasury curve but it's a healthy sign nonetheless.

Please note that the main credit index is about to roll. The new constituents for CDX #13 have been chosen and it will start to trade on September 21st. Initial analysis has the new index trading ~16bps tighter than the current one.

I was a bit surprised to see S&P putting >$5B in corporate loan CDO's on creditwatch negative; perhaps I was a bit naive in my belief that the worst had passed us by.

Warren Buffet seems to believe that the worst has past in the mortgage market as evidenced by his recent purchase of Capmark's mortgage unit. Spreads in BRK paper did not react much at all.

While the ECB remains unchanged, the FOMC has "considerable uncertainty" about the strength of the economy (minutes here). This leads me to wonder why Fed governor Plosser was on the tape predicting that rates will have to rise "very rapidly".....he did, however, add a codicil of "if the time is right."

While I'm generally pretty dismissive of most financial tort lawsuits (being a believer in 'caveat emptor'), this recent suit has some interesting tenets. The rating agencies are claiming their opinions are protected under "free speech". Well, this particular judge does not believe that defense is adequate and is allowing a class action lawsuit to proceed against them. Here's the Bloomberg story.

If you can survive the first few paragraphs about golf, Bill Gross does eventually get to what he believes is the 'new normal' for the financial markets in his recent monthly outlook.

Here's some more interesting Labor Day weekend reading....in which the SEC rails at the SEC for not catching Madoff...even Madoff himself was surprised he didn't get caught.