November 17, 2011 Credit Market Recap

The tone in the fixed income markets today was one of de-risking as Spanish yields on the auction blew out.  Eurozone concerns continue to weigh heavy on the markets and the financial sector has been bearing the brunt of the smackdown.

The general tone in the credit market was somewhat negative as CDX NA IG/HY 17 were off a tad more than 1% with the indices adding 1.7 and 12.6 bps respectively.  European CDX fared slightly better with the series 16 shaving 5bps off the index.

Source: Markit

Breadth in the market was negative (as one would expect given the magnitude of financial issues)

FIG issuers have been body slammed by the turmoil with JEF (and brokers) leading the way:

The above chart is JEF 6.875% '21.  Closed out at $78 for a 10.6% yield (the 5.125 '18 are $78.25 9.8% and the 8.50 '19s are $86.25 11.2%).  I find this to be somewhat interesting.  Obviously these maturities are further out and should they come out of this situation, the bonds will perform well.  With this in mind, we buy the lowest cost exposure - the '21s.  Ahhhhh, but what do some of us who got kicked in the teeth in '08 remember?  FINANCIALS ARE BINARY!  They are good or not.  The equity continues to trade down after hours hitting fresh two year lows.  That said, this is a situation that warrants further investigation for value players (like myself).

And Morgan Stanley....well MS has never fully recovered from "the crisis" and gets taken to the woodshed faster than the rest.  See MS '21s closing +525 (remember a scant month ago the re-opened this baby at +335) out 50bps.   Ouch.   Goldie fared little better with GS '21s 425/15 out 35bps.


The new issue market was somewhat robust with approximately $5B in deals announced.

Personally, I have liked LLL in the defense space and think it warrants consideration in the 5yr.