Credit update March 25, 2013

The action in Cyprus made for a fresh chapter of Euro uncertainty, dormant for quite a while. Whereas this will in no way cause the demise of the Euro, it creates a fresh rescue drama and threatens to push back the European recovery by some months. We saw the Euro fall as weak as 1.2911 before regaining stature towards the end of the week. Volumes were on the quiet side as participants were in a risk-lowering mode from a cautionary stance against the backdrop of a continuous bull market that we have seen this year.


Some new issues were placed back in the shelves to await a stronger week and get more eyeballs focused. We saw some mixed flows in ETFs and we also note that short interest is on the rise in ETFs although this is structural – institutional players are embracing the asset class as a genuine hedging mechanism and so this short interest must be viewed against this new paradigm.


Investment Grade CDX jumped to the series 20 and the rebalancing saw the new index trading at 90 bps to swaps. Again, this is a function of the constituents of the new index and does not reflect on the market.


Names in play last week included: PXP, FCX, CHK, HNZ , X.


investment grade +90 bps over swaps

High yield .. close to $105 in dollar price.. 6.5% yield to maturity.. was $102 last year!

Emerging market +112 bps over swaps


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