Credit update September 16, 2013

Syrian war cries seemed to die a quick death in a new Russian-brokered chemical weapons pact and that helped markets settle itself into a new, stronger plateau.

Credit markets did uniformly well during the week. In a continuing testament to the strength of the credit market, investors easily absorbed the massive $49 billion Verizon deal (the largest bond deal ever – in credit). In fact, interest went twice as high for the deal (reaching close to $100 billion) before it was priced and allocated. The massive deal completely re-priced the Telecom sector and the paper performed excellently in the secondary as well, with several points of appreciation. Verizon issued 3s, 5s, 7s, 10s, 20s and 30s – impressive in breadth as well as depth. Aside from Verizon, the new issue bench was strong in both high grade and high yield.

In another pointer to soaring investor’s yield appetites, Moody’s reported that covenant quality declined again in August, as issuers can get away with skinnier (or no) covenants that normally protect investors.

Credit has a lot of catching up to do – investment grade is still 4% below water for the year – but with just a few months left into the year, it is doubtful whether the QE taper sell-off can be reversed. Stocks seem to be destined to be the runaway winner for the year as QE taper talk only enhanced the allure of growth stocks, reversing losses in defensive and dividend names.

Have a great week ahead!


Investment grade +77 bps over swaps (5 bp better week/week; negative return -4% YTD)

High yield – 6.2% yield to worst (still positive for the year +3.1%)



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