Today is one for the record books.
IG18 was at 103 yesterday at 4pm. HY18 was at 95.25. HYG was at 90.58. Both CDS indices were tighter on the day and HYG was a bit lower.
IG18 is at 108.5 right now. HY18 is 95, so -1/4. HYG is actually up. The S&P is down a touch, but Nasdaq is clinging to small gains. LQD is up with treasuries, largely ignoring the beating on IG18/
I can’t think of another time that I’ve seen IG out 5.5 bps, and HY18 down so little, and the cash market holding in just fine while stocks ignore it all.
It very reminiscent of trading post Lehman when the key driver than was positioning.
JPM stock is drifting to the lows. I can see how fear of loss is bad for both the stock and for credit, but I think that is largely overblown. Fear of increased regulation is bad for the stock, but frankly I think you can make a strong case that increased regulation is good for the credit. The credit doesn’t need the excess profit to do well, but more control and less risk would be beneficial.
On top of all this, we have Spain and Greece battling each other to create the biggest market move. The situation in both seems bad. Neither is going to be fixed. I think it’s extremely likely that Greece actually comes up with a soothing plan over the weekend. They need to renegotiate or default and leave. I think everyone will give renegotiate a chance.
Spain has bigger issues and they aren’t going away anytime soon, but a lot does seem priced in already so any risk-on trade will affect Spain no matter how bad the fundamentals are.
I continue to think high beta high yield names that have lagged because they are in the CDS indices should do well, and that it will be tough going for some high beta names in the IG index, but it is far from clear how much of the trade is still on or how much pressure there is to unwind it immediately.
Big and complicated too another beating with this JPM story, and this may be the last thing that was needed to force regulators to finally act and push CDS to exchanges and put severe restrictions on mark to model risk at banks.
I didn’t do anything with the TFMkts best ideas and as much as I feel I should do something, I think I have to dance this weekend with the trades I brought to the party.
E-mail sign up for the weekend T report and hopefully two special reports. Working titles:
Can an 800 pound gorilla be thoughtful? The JPM trade.
Size and how you use it both matter. Regulatory Capital.