Credit update Aug 5, 2013

It is almost as if QE taper talk was but a bad dream and more so, a bad dream just to create some short-term opportunity. The stage has been re-set as a low growth environment with little inflation is making investors evaluate their asset allocation – again – after equities got too hot a mention in the press and earnings have been lukewarm at best with market capitalizations being driven by P/E expansion and not revenue or EPS growth. This could be a reason why high yield is getting many of the flows back and is positive returns YTD.


Investment Grade and High Yield returns are almost mirror images of each other for the year thus far (HY is +3.3% and Investment Grade is -3.2%). Interestingly, the spread between the two asset classes still has room to run from the pre-stressed period when the two traded closer to each other.


In individual price action, Edison Mission bonds were tighter as creditors of the commercial power unit were reported to seek more than $1 billion from the parent entity. Gold names like Barrick and Newmont continued to pant for breath in secondary action.


In high yield, ILFC paper suffered from talks stalling from the sale of unit. JCP paper was also weaker from news that CIT refused to finance vendor deliveries.




Investment grade +73 bps over swaps

High yield –  6% yield to worst.


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