Daily Commentary

Secondary credit spreads are moving wider this morning lead by the underperforming banks and brokers.  Continued concerns over swine flu and new 'tough talk' from the GM bondholders group have credit investors picking and choosing their spots carefully.

A big jump in the just released consumer confidence number could turn this around quickly.

The new issue market continues to be impervious to broader market worries.  Potash announced a deal this morning and had ~$2B in interest in 34 minutes before the deal closed.  Several regional banks have or will come to market soon with new debt deals.

The sectors that could be negatively impacted by a potential epidemic have low index weights so that has had, so far, a muted impact on the index.  Conversely, the healthcare/pharma sub-sector could benefit and has a much larger index weight.

I'm surprised that CDS outstanding has not dropped post the mid-April Big Bang protocol.

A hedge fund is making some noise that MBIA may have triggered a succession event in their CDS when they split the company.  This could cause some volatility in the name.

Obviously, most of the chatter this morning is about the banks/brokers and potential need for further capital raises.  Here are approximate spreads over treasuries, in basis points, for ~10yr bonds and the change in spread overnight:

JPM ~350 +10

WFC       ~370 +5

GS ~430 unch

MS ~465  +15

BAC ~565 +15

C ~605 +25

MER ~680 +30

Daily commentary

If you've seen any headlines this morning, it will come as no surprise that spreads are opening wider.

Global equity weakness, Geithner's comments about possible further 'large amounts' of assistance, and the rising inevitability of GM and DCX bankruptcy have created an understandably foul mood.  

GM bonds are currently about $3 lower on the news.

Some strategists are citing a tepid G20 statement as further reason for weakness but I cannot recall even once in my career a G7 or G20 comment even tipping the needle.

I'm encouraged by some preliminary signs of risk taking by the broker/dealers.  Goldman entered a swap agreement with Lincoln National that helped boost their statutory capital.  The equity markets don't like this as the previous option had been raising government guaranteed debt.  

Swap spreads are mixed and while the Vix remains rangebound, it's moving higher.  

New issue supply will end the month at ~$60B (non guaranteed)....so far, nothing on the docket today with the spread weakness.  The recent pharma new issues are weaker today after strong performance of late.

Greenspan wrote an interesting, and verbose, editorial in the FT about how equity recovery is coming and will help the global economy immensely.

DTCC data shows single name CDS net outstanding shrinking over the last 4 weeks while index outstanding continues to rise.