Credit update December 9, 2013

Stocks closed the week mostly unchanged. Although pundits are hailing a positive December to round out the year, QE taper has been the keyword as positive economic news continues to flow in, creating uneasiness on QE largesse. Also, with the large gains, profit-takers are stepping in to clock in their gains for the year, in preparation for the taxman. Credit markets were sitting on the sidelines, with high yield slightly tighter in spread but unchanged in yield. And investment-grade seems destined to have a negative return for the year (close to -2%) unless spreads (already at the lows) miraculously rally some 30 bps.

In credit news, Microsoft raised close to $8 billion in investment-grade offerings, ostensibly to buy back equity, a trend we have seen in the last two years (of increasing EPS either through buybacks or cost-cutting). Interestingly, this Microsoft debt offering was evenly split between $ and Euro, reflecting that European debt markets are as healthy.

In other news, JC Penney (JCP) has mostly been hammered down since the management upheaval (Ron Johnson ejected and replaced by Ullman) but the paper did rally a bit on the heels of better holiday sales (Black Friday etc.) but the paper remains yieldy (north of 9.5% yield on the benchmark 10 year). The stock ($8) has been mostly up from the lows ($6) set during its liquidity crisis (and the subsequent stock dilution), and the firm has managed to vault over the lower hurdles set for retail sales performance.


Investment grade +69 bps over swaps (unchanged week over week)

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


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