Monday, April 20, 2009

Morning Credit Update

Credit markets are extending their widening trend form late Friday today as single-names are underperforming indices for the first time in over a week. The skew (the difference between index and fair-value) is at its tightest in recent times and we suggest that with equity still significantly rich to credit that we will see equity underperform IG credit in the short-term.

Financials are underperforming with Citi worst but all major banks widening. Notably, the widest trading names are underperforming (although high and low beta credits are trading around the same level of weakness) which seems to indicate that some of the squeeze on single-name shorts may be easing modestly.

Builders all wider with high beta underperforming with BZH and HOV considerably weaker.

Autos all wider today.

REITs are surprisingly better (with the exception of Boston Properties) as we see CMBX trading lower in price in general (on the day that they start trading in price rather than spread).

Wideners outpacing tighteners by almost five-to-one.

Bank senior-sub spreads decompressing significantly.

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