Daily Commentary

Tighter swap spreads and a lower Vix are pushing spreads tighter today despite weaker equities.  Credit curves continue to steepen (actually reverting towards 'normal') and the negative basis continues to narrow.....these are both strong signs that the spread rally is sustainable.

The top of everyone's discussion list is the pending bank stress test parameters and results.  Most notable is the (leaked) target for tangible common equity of 3% which is slightly lower than expectations.  I don't suspect they would target an insurmountable level....so expect results to come in close to that 3%.  Michael Milken reminds us that it's very important to focus on the proper capital structure.

Morgan Stanley's CFO says they would "consider" paying back their $10B TARP line.  This comes 1 month after their CEO Mack said "[it's the] wrong time" to pay it back. 

Hartford insurance is trying to sell it's property insurance unit for ~$4B.  Spreads were initially weaker as this was viewed as the crown jewel.  However, spreads have since recovered to only slightly weaker in line with the rest of the sector.

The UK government may embrace a very different way to sell their government debt (ahead of a pending flood of issuance).  They are considering syndicating the debt issuance in much the same way as corporate issuers do.  A pundit would view this as a sign of weakness....needing a broker/dealer to aggressively peddle that which previously 'sold itself'.

The ICE and CME are racing to gain share in the clearing and settling of credit derivatives.  Obviously, this will be quite lucrative given the triple digit growth over the past few years of credit derivatives.  At this point, ICE seems to be taking the lead.     

S&P cut their ratings on ~$8B of CDO's backed by residential mortgages.  29 of these 39 tranches face further pending cuts.    

Daily commentary

Credit spreads are following the equity market stronger this morning.  I'll leave the debate about whether this rally is for real or a dead cat bounce to more highly paid prognosticators.  

Geithner's comments on Charlie Rose and Citi's 'profit' are the most frequently cited reasons.  I intentionally used the quote marks around Citi's profit.....as almost anyone could show a profit if they didn't include writedowns, were allowed to dispose of bad debt, and had the ability to raise government guaranteed debt at almost a 0% rate.  

The lower Vix seems to have encouraged more issuers to come to market.  We saw ~$5B in non FDIC debt issued yesterday alone.  This brings March to ~$47B (vs Feb $94B and Jan ~$117B [includes FDIC debt]).  So far today, ETN and DIS are in the market with new issues.  For details, on Bloomberg type NIM3

The oft quoted, most liquid, credit index is the CDX (now series 11).  It's currently trading at a historically wide basis of 50bps (with the index being rich vs intrinsics).  You occasionally see odd technicals like this in advance of a calendar roll (mentioned yesterday).

The ICE has rolled out it's CDS clearinghouse this week.  This is REALLY BIG NEWS in the credit markets.  It may not immediately garner all the liquidity but it certainly has everyone's focus....including, most importantly, the Fed.  This is the largest single change to the credit market trading in years so please take your time to get up to speed on it.