Monday, June 29, 2009

Loans Versus Bonds Relative Value: Week of June 25

As expected last week, the tide in credit is turning. The average loan was 5 bps wider, while toxic bonds, just like that scene in Indiana Jones and the Temple of Doom, are starting their descent back into hell, wider by 78 bps on average, and just 23 bps away from the critical 1,000 bps threshold (after being at 895 bps last week).

Also, to see what a schizophrenic yoyo game even credits have become compare the Neiman Marcus and TRW bond spreads (wider by about 500 and 850 bps, respectively). Compare the TRW action from the current week with that from May 28. Lunacy.

While everyone now knows that the equity market is a manipulated, East Setauket fat-fingered joke (Dow going vertical on more bad news today? enough already), seeing credits act as irrationally should bring many a tear to the eyes of any seasoned credit trader.

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