Credit update October 7, 2013

Markets seesawed, eventually ending the week a bit lower, as political discussions and negotiations continued in Washington. An interesting note in Barron’s was what we traders and investors would do if we had little or no data, since much of the data and metrics for the markets come from government agencies that are technically shut down.

In continuation of last week, 1-year CDS on US sovereign debt continued to widen, although at these levels (+53 bps), the smart money seemed to be transitioning to selling the CDS (or long US sovereign risk) or betting on an eventual capitulation in Washington. Also, interesting was that 1-year CDS (+53 bps) was trading higher than 5-year CDS (+41 bps); an inverted curve commonly found in distressed credits.

Other than the macro sovereign news, several names were in the news and were active. Edison Mission and Lloyds tightened in investment grade, and RBS continued its widening. JCP continued to be taken down across the capital structure and its paper (high yield) was down almost 4 points in the 5.65s ’20.

The new issue calendar continues to steam ahead, government shutdown or not. American Honda drove the field with 2.75 billion, in 3s, 5s and 3-yr frn. High Yield was relatively quieter but had a couple issues and two more to be priced this week (Michael Baker and NGL Energy).

Have a great week ahead!



Investment grade +81 bps over swaps (unchanged week over week)

High yield – 6% yield to worst (unchanged week over week)


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