Daily commentary

Spreads are wider this morning following the flaccid European markets.  Hearing the comment that banks could "shed...the amount they owe bondholders" from a congressman hasn't helped matters much either.

The obvious question in finance has been, where in the capital structure will the government draw the line?  Hybrids and preferreds have had a whipsaw year as they are clearly the current Maginot line.  Bloomberg had an article today where Dan Fuss uttered that preferreds are "screaming buys."

Given the bond investors are largely pessimists, I found it a bit odd that GE spreads are actually slightly better this morning (so far) despite losing their AAA rating from S&P which they've held since 1956.  The perverse logic here is that S&P put them on stable outlook whereas when they also cut HSBC Finance (old Household) earlier this month to A, they put them on negative outlook and spreads have gotten whacked.

I'm disappointed to see that the negative basis is widening and that secondary volumes have been relatively light.  These tell me that any rally won't have legs.  If the negative basis is widening, cash bonds are lagging any rally in CDS spreads.  If it's just CDS spreads, that tells me that only fast money is buying.  Also, while I am encouraged that new issues are coming to market and getting placed, if secondary bonds are still thinly traded, that tells me it's not a broad buying base.

Speaking of new issues, GS, VLO and SYY are in the market today.  MRK and PFE are looming over the near term horizon.  They continue to be placed easily and perform in the aftermarket.  

Daily Commentary

Credit spreads have had a pretty volatile day so far starting out weaker but since recovering to slightly better.  I had expected a straightforward stronger opening this morning given the Chinese stimulus package and resultant equity reaction.  I suspect yesterday's down day on the Vix will not be repeated.

The new issue market was dormant only briefly.  Yesterday we saw over $11B in issuance from names such as KO, LLY and Cargill.  All are slightly better than where they were issued.  There were 2 small utility deals issued in the market this morning.  

GE spreads have been getting killed of late.  The CDS for GE are now trading 'points up front' which is typical only of very distressed names.  If you'd like a primer/explanation of 'points up front' please leave a comment on the site.  The NYTimes nicely summarized some of the prevalent worries in the name....largely unrecognized losses.

This month's Atlantic Magazine has an interesting article about how the crisis is impacting different areas of the country.  I was surprised to hear that NYC's financial jobs only make up only 8% of the overall job base....vs Des Moines at 18%, Hartford at 13% and Charlotte NC at 10%.  The national average is ~5.5%.

In a move reminiscent of days gone by, DeutscheBank just hired away 2 traders from BankAmerica.  This is notable for 2 reasons; one, the trend over the last 12-18 months had been to leave big principal trading firms for smaller agency only shops.  Also, these 2 guys (Sean George and Masaya Okoshi) were successful originally on the cash bond side of trading (not CDS).  Perhaps the days of the 25 year old quant jocks getting paid 2-3 sticks a year to trade CDS are over.