- A total meltdown at one or more reactor in Fukushima. The typhoon has already constrained capacity - which will no doubt be felt by nearly all manufacturers, but a total meltdown will shutter more factories and further reduce capacity. The hit will obviously be felt more in Japan, but the global markets will roll. As I am aware as of this writing, it does not look likely, but cracks in the containment units and hydrogen build-up can go bad fast.
- Continued - and increasing - unrest in the middle east. With the Saudis in Bahrain, Iran will be pressed to react in some way - either in Bahrain or opening up a new front somewhere else to spread Saudi (and/or coalition) forces thin. The Saudis are also facing discontent at home, but this move helps keep an opposition movement down with the show of force. Japan of course has averted the worlds eye from the middle east for the time being.
I am also concerned about the effect of the European Financial Stability Facility ( euro440 billion - $606 billion) which allows it to buy government bonds (from the governments if austerity measures are agreed to) instead of on the secondary markets - which means the ECB is still the buyer of last resort.
With that said, lets look at some fixed income:
Treasuries obviously had a good day as risk came off the books.
Corporates were mixed, but hi/low ratio for IG and HY continued to be strong:
Quack, quack AFLAC (75% sales as a % of 2010 revenue from Japan) was a solid 50 bps wider - and fired Gilbert Gottfried. Other bank/finance names out 7-10bps. EXC, SO, PCG and EIX feeling pressure due to concerns about effect on nuclear power (Germany is taking 7 older units down for inspection over the next few months).
Oh yeah, lets not forget that Moody's pinged Portugal from A1 to A3: "The cost of market funding is likely to remain high until the deficit has been reduced to a sustainable level and the prospects for economic growth have improved," it said in a statement.
Kinda tired, gonna close with that.
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