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Warnings from the corporate bond market Replies |
rffrydr
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rffrydr
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 Posted: Thu Oct 27, 2011 9:09 am Post subject: |
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Credit redux
By Tom Graff | Oct 27, 2011 | 10:46 AM EDT
Feels like the last of the credit shorts capitulated first thing this morning. Credit default swaps opened extremely strong. The IG index moved as much as 12bps tighter in early trading but has backed off the -8bps. Despite this, it looks like individual names are still at the tights. Bank CDS are 20-50bps tighter. High-beta consumers 10-20bps tighter. High-beta industrials 20-50bps tighter.
While you’ve obviously missed a big move if you buy credit today, there is lots of room to tighten. As recently as July, Alcoa 5.4% bonds due in 2021 traded at +203. Now it is +310. So maybe you missed the move from 450. So what? Catch the second half. Once Europe fades as our primary concern, the yield grab will be on.
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rffrydr
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| Posted: Wed Oct 19, 2011 10:51 am Post subject: |
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| Quote: | Credit update
By Tom Graff | Oct 19, 2011 | 11:52 AM EDT
Credit actually performing a good bit better than stocks today. Financials are 7-15bps tighter, which you could say is a bit of a bounce back. But we’re also seeing considerable strength in areas like telecom, media, etc. Offer-wanted far out pacing bid wanted, and cash significantly outperforming synthetic. So real money is increasingly comfortable with risk taking in bonds. While I remain quite skeptical of how things are developing in Europe, its much healthier to see a real-money driven rally than a short-covering rally. |
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rffrydr
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| Posted: Mon Oct 17, 2011 12:11 pm Post subject: |
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Yup...that graph below was a good tell. --which I ignored. But things are a little better now:
On Bonds
By Tom Graff | Oct 17, 2011 | 1:34 PM EDT
| Quote: | While there is broad weakness in the credit markets today, cash is far outperforming CDS. Typically this indicates that the action is dominated by fast money. But more importantly, it is telling you that the Street is no longer aggressively trying to cut balance sheet on the corporate bond desks. This was a big part of the poor performance of credit in September. Real money was never really an aggressive seller at any point.
The one area where there is some cash selling is financials. Now readers should bear in mind that the mega-cap financials often bring new bond deals shortly after reporting earnings, which tends to weigh on their spreads around this time. But still, we’re seeing Morgan Stanley 20bps wider in the 10-year space, offered around +440bps. Other names 6-10bps wider. CDS on MS is more like 35bps wider with other names 15-25bps wider.
In high-yield, the CDX contract is performing much worse than the ETFs (down 1 point vs. more like -0.50% for the ETFs). Be careful if thinking of adding the ETFs today. |
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rffrydr
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| Posted: Thu Aug 11, 2011 8:19 am Post subject: |
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Everybody take a breath:
http://www.minyanville.com/businessmarkets/articles/interest-rates-corporate-bond-credit-risk/8/10/2011/id/36180
| Quote: | | As both stocks and corporate bonds are claims on the same corporate cash flow stream, it makes little sense for investors to flee stocks and embrace bonds. That they are tells us all we need to know about how badly investors have been scalded over the past decade. A similar development after the Great Depression led to a prolonged period in the 1940s where dividend yields had to be greater than bond yields to induce investors to shift to stocks. |
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rffrydr
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| Posted: Tue Mar 01, 2011 3:32 pm Post subject: |
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Corporates doing just fine today. Sold out of my BAC preferreds and LT looking for the equity setup. 3.50 on oil and you'd think there's an inflation scare coming...but you wouldn't be thinking.
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rffrydr
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| Posted: Tue Nov 30, 2010 1:20 pm Post subject: |
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Tom Graff
Credit update
1:10 PM EST
Corporate bond spreads are substantially wider, underperforming yesterday in most cases.
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rffrydr
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| Posted: Wed Aug 04, 2010 1:49 pm Post subject: |
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Tom Graff
More New Corporate Bond Issues
8/4/2010 11:14 AM EDT
| Quote: | Another pretty heavy day of corporate-bond issuance. AMB Property, Magellan Midstream, Northern States Power, Aflac, PNC Bank, and Ferro are among the issuers. Aflac is actually buying back stock with the proceeds. Glad at least some large corporations are finally taking advantage of the rate environment. AMB and Ferro are using the money to pay down debt.
Look for shareholder-friendly bond issues to continue and, hopefully, multiply. That would be a pretty bullish sign. |
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rffrydr
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| Posted: Mon Jul 26, 2010 10:53 am Post subject: |
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Tom Graff
Alcoa new bond
7/26/2010 10:28 AM EDT
| Quote: | | They've got over $4 billion in orders for a less than $1 billion deal... There just aren't enough bonds to go around. Period. |
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rffrydr
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| Posted: Fri Jul 23, 2010 7:06 pm Post subject: |
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Tom Graff
Credit update
7/23/2010 4:27 PM EDT
| Quote: |
Corporate bonds performed very well today. All sectors and virtually all benchmark names trading tighter. The 10-year pushing 3% late int he afternoon didn't have much impact today, but if it holds I predict a truckload of corporate bond buying on Monday.
Financials were the best performer on the day. Banks 3-5 tighter, with Morgan Stanley the best performer. The new 10-year issue is +255/250 after trading between +257 and +268 yesterday. Citigroup the weakest performer, about flat in cash and 3 tighter in CDS.
Heavy industrials 3-6 tighter. Telecom and media 2-3 tighter. Retail lagging a bit, 0-1 tighter. Tech also lagging, 0-2 tighter. |
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rffrydr
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| Posted: Tue Jul 20, 2010 7:39 am Post subject: |
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Tom Graff
Credit open
7/20/2010 7:31 AM EDT
| Quote: | Interesting to note that with S&P futures down pretty sharply, credit is opening up flat. Bank/finance bonds actually seem pretty firm, at least for the moment. In CDS, I'm seeing slightly more names opening tighter than wider.
Flows are a key for investment-grade corporate bonds. As long as flows are strong, it creates such a huge positive technical for corporates. If the stock market were to take a big leg down from here, Treasuries would probably be the top performing bond sector. But strong investment-grade corporates, especially less cyclical names, wouldn't be far behind. |
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rffrydr
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| Posted: Fri Jul 09, 2010 8:54 am Post subject: |
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Tom Graff
Credit open
7/9/2010 10:13 AM EDT
| Quote: | Corporate bond spreads are opening strong. Tone seems even better than the quote levels as we're finally starting to see some real money activity. Perhaps accounts are finally getting used to absolute rate levels, or perhaps the complete lack of new issuance is driving some accounts into the secondary.
Bank and finance bonds are 2-3bps tighter. Yesterday's last trade is today's bid side. Bank of America was the most active among the mega-cap names yesterday. The 5.625 '20 are opening 243/236 after trading in a range of 237-246 yesterday. CDS outperforming cash, with most names 5-8bps tighter.
Telecom and media also looking pretty strong, 2-4bps tighter. More cyclical names are lagging today. For example, heavy industrials are lagging a bit, mostly unchanged. Dow Chemical has been trading heavily lately, but other big cap names have been hardly changing hands. Could be that those that are more bullish on the economy won't sell and those that are more bearish won't buy the cyclicals. Simlar story in consumer names, with non-cyclicals 1-3 tighter but retailers and other more cyclical names flat. |
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rffrydr
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| Posted: Thu Jul 08, 2010 8:09 am Post subject: |
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For the first time since Q2 2007, credit-rating upgrades exceeded downgrades.
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rffrydr
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| Posted: Mon Jun 14, 2010 8:36 am Post subject: |
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Tom Graff
Credit rallying
6/14/2010 9:03 AM EDT
| Quote: | Solid credit rally today, and at least for the moment it feels a little more legit. I don't mean that in terms of real money involvement, there is none so far. But the street is working hard to cover their shorts, especially in financials. Goldman 6 '20 are 10bps tighter at +265 to lead the way. Other 10-year financials 5-8 tighter. Other sectors opening 1-3 tighter.
So now the question is whether real money will follow-through on the street's short covering. The conditions are right. Treasuries have sold off a bit, allowing for the best absolute yields in a while. If buyers don't show up today, it would be a very negative sign. |
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rffrydr
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| Posted: Wed Jun 09, 2010 2:05 pm Post subject: |
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TCW MBS treaded water: that 15Y tranche is probably a good play however.
Tom Graff
Bond market update
6/9/2010 3:34 PM EDT
| Quote: | Treasuries have erased losses with stocks turning to the red and the strong 10-year auction. Meanwhile swap spreads are substantially tighter (2-5bps), especially in the front end. This is in part a reaction to Bernanke's testimony this morning, particularly the pledge to keep the EUR/USD swap lines open. No reason why he wouldn't so this shouldn't come as much of a surprise.
This is helping to put a rally into MBS, which are outperforming Treasuries by 4-5 ticks. The rally is pretty consistent across coupons. I have added some to 15-year 4% MBS, which I'm treating like sinking fund bonds. Most of these borrowers have borrowing rates in the 4.5-4.75% area, but by selecting a 15-year mortgage the borrower is suggesting they are working to pay off the mortgage. These are fantastic loans to just buy and hold.
The muni market is pretty heavy, with activity very light. Has been that way for several days.
TIPS are performing in-line with Treasuries, basically flat on the day. |
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