Daily commentary

There's not a lot of good news out there today. Credit spreads have caught the equity market malaise and are weaker today.

But bear in mind that over the last 30 day investment grade spreads have remain unchanged while the S&P has fallen ~11%. Here's some additional context, the Barclay's Credit Index closed last night at 445bps. The wides (weakest level) were 545bps and the recent tights were 424bps.

One continued sign of strength is the new issue market....we've seen deals from BAX, WU, WMI, Vanderbilt University and a small utility.

I found this data alarming....loans, which are the top of the capital structure, have historically had a recovery rate (after default) of ~81 cents on the dollar. The last 5 loan default recoveries have averaged 40 cents.

The Vix keeps creeping higher which could form a ceiling for spreads.

S&P notes that there have been 31 defaults for $49B YTD (as of Feb 17th). They also note that there are ~$174B in bonds that are on the verge of falling below investment grade which is the highest amount in 17 years. Given this information, I find it ironic that they have cut the corporate rating of Bankruptcy Management Solutions Inc. from B- to CCC+ here.

The snow beckons...therefore, the next daily commentary will be out Monday March 2nd.

Daily commentary

I suspect President Obama's $500k pay cap is attracting most of the attention in the credit markets today.

Spreads are slightly better this morning but I don't think we'll see any large moves either way ahead of the TARP II announcement and/or payrolls on Friday.  A declining Vix strengthens my thesis as well.

The new issue supply in investment grade credit is keeping a torrid pace.  Yesterday saw $7.4B in non FDIC guaranteed debt alone.  Novartis, P&G and Altria were the headliners.  You can see details on Bloomberg by typing NIM3

While the investment grade market plugs along just fine, the high yield market is headed the other way...much weaker.  Defaults during January were the highest on record at $25.2B.  In addition, there are another $23.2B worth of bonds in their 30 day grace period (payments were not made but they have 30 days before it's an official default).  Those are staggering numbers.  

For those of you under 40 years old, Google Latitude is probably old news.  They continue to churn out interesting, simple and useful apps.