WEEKLY UPDATE - Market Watch From The Trenches
The most interesting data points I saw last week:
Bonds
Major Theme: Healthy Corporate Debt Markets vs. Weaker Sovereign Debt Markets - There was a risk transfer from Governments to Corporates, signaling more confidence in corporations than nations!
This is bothering the equity market. Scary indicators of Sovereign Government risk have massively weakened relative to corporate bonds. SovX is trading wider than iTraxx! European sovereigns are now considered riskier than corporates!! I have never in my lifetime seen this before. NEVER.
Jean-Claude Trichet hard line that the ECB collateral rules are graved in stone, therefore beware of downgrades in Greece, Spain, and Latvia.
Watch the EU!
@convertbond Top “Tweets” From The Week…
* Greece interest rate spread vs German bonds are 50 bips wider in 3 days… the widest since the peak of Dec 2009 at 270 bips.
* 2-year Greek debt is trading with the same coupon as 15-year US debt at 4.20%! 5-year CDS is trading closer to Iraq than Ireland.
* They love Junk in the US bond market: Hexion HXN, Single B Credit, new deal upsized this week from $700 million to $1 billion.
* $9+ billion of High Yield New Issue supply priced this week. Largest week since 2007.
* Stupid deals are getting done - Salesforce.com $CRM priced $500 million senior unsecured convertible notes 0.75% Coupon up 27%.
* E-Trade $ETFC 12.5% of 2017 trading up at 118! + 4 points in the last 7 days, premium demand in the market for high coupon paper.
* With Libor in tiny digits they will buy anything for yield; United Air Lines UAUA 9.875% of 13 priced this week at 99.25, traded Friday 101-102 for a 9.5% yield.
* Ambac 5 year CDS blowing out on Las Vegas Monorail bankruptcy Financing Credit Default Swap Monoline Insurance.
Hearn Jefferies walked away from a $2 bln 7.75% and 8% Senior Note Offering out of Icahn Enterprises LP. Deal traded down 1.5 pts in its 1st day… Hmm… blind trust to invest in real estate. Memories of WCI communities anyone?
Obama is clearly tossing the loyalist Paul Volker under the bus in Volker’s quest to break up the big banks and bring back the Glass Steagall Act; the dismantling of which blew up the world economy 10 years later.
Stay cautious, stay nimble. Don’t get caught in a significant correction.
Until next week,
Larry
