Credit update September 2, 2013

Happy Labor Day! On that note, a shortened workweek and with diluted interest of participants in the market led to a light issuance week after banner weeks. Only marquee AA and AAA names like EIB, IFC and SEK made the cut, and that too in 3-5 year maturities. High Yield was quiet.

 

Syria of course, captured much of the attention and managed to seesaw the market. As expected, credit dutifully widened in sympathy (see spreads and data below) but I expect the broad investor market is looking at this widening for new entry points – as we have seen numerous times, and that too for more pressing crises.

 

Emerging markets, more so their currencies, continued to get taken to the woodshed, especially as Syria headlines grew in volume and vigor. I expect this also to be short-term; EM balance sheets are in better shape (and tighter fiscal policies) than during previous EM crises, and almost all weakening has been tied to the QE taper talk and the impending flood of money back to US shores. The QE taper talk is but in its 1st inning and whether its unfolding can so negatively affect EM currencies is more speculation than quantitative at this point.

 

 

Spreads:

Investment grade +84 bps over swaps

High yield – 6.25% yield to worst.

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