A slew of strong economic numbers fueled more chatter on QE tapering and credit markets exhaled away some of last week’s gains. Perhaps this time around, investors are already used to the QE talk and will not be as skittish as before (when stocks sank by more than 5%). Chinese current account data (positive) also gave watchers some pause after Chinese growth had been written off given the new administrations’ reluctance to offer easy liquidity. In related EM news, the appointment of Raghuram Rajan – a former IMF chief economist and a constructive free market thinker – to India’s RBI (Reserve Bank of India) post gave additional cheer to investors expecting broad policy changes to fan growth from moribund levels.
Markets are still strong relatively speaking (inflows still strong) and most of the give-up is asset allocation related (some flows to European Credit from the US following the better news and stability in that region). We saw a strong calendar last week: Venoco, Murphy Oil, BMC in high yield and Procter and Gamble and Shell in investment grade.
Investment grade +75 bps over swaps
High yield – 6.1% yield to worst.