Credit update November 4, 2013

A hint of a less dovish (than assumed with Yellen’s stewardship) led stocks to wean off some of the froth from last week. While the pace of bond buybacks did not change with the Fed meeting, the language was more aggressive than had been taken for granted by the market. The US dollar of course, was the prime beneficiary while credit was mostly flat over the week.

Earnings news continues to be strong, and as I remind our readers again, through earnings expansion (or cost cutting and efficiency) and not through revenue increases. To illustrate, a majority of the S&P names have reported and almost 75% have beat on earnings but just 50% have beat on sales increases. These high profits have kicked the can labeled “what equity bubble” down the road for now, and justifiably from the technical sense as equities remain cheap compared to most asset classes.

European high yield meanwhile continues to bring in interest as it is a poster-child for high yield (little to no inflation, and weak to no growth – as Europe totters along and growth will lag the Americas). Also, having rebounded from the lows, the returns have outpaced that of the US and provide good advertising headlines. And in credit news, while most companies have been wont to issue (cheap) debt to buy back equity or issue dividends, Barrick Gold did just the reverse; issuing $3bb of equity to pay down debt.


Investment grade +73 bps over swaps (+1 bp wider week over week)

High yield – 5.6% yield to worst (unchanged week over week)


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