C.M.O. 5.11.2009

Credit Market Overview
May 11, 2009

. . . Was your trip successful Mr. Holmes? The usual, Watson, murder, robbery; crime must pay as there hasn’t been any slow down in it that I can see.

Haven’t read a paper all week better catch up on the news. Hand me my glasses please Watson. Thank you. Gee, these seem a bit different; did you get me new glasses? Yes, Mr. Holmes they’re rose colored, seem to be quite the thing, everyone is wearing them now-a-days.

Well as long as they work . . . now let’s see Tuesday, May 5th “More Banks Will Need Capital”; Wednesday May 6th “BofA Faces $34BN Gap”; Thursday May 7th “Banks Need at Least $65 Billion in Capital”; Friday May 8th “Fed Sees Up to $599 Billion in Bank Losses”

None of this sounds too good Watson; markets must have gotten pummeled this week. Well actually quite the opposite Mr. Holmes, the Dow was up 362, or 4.4%, to 8575 on the week, the S&P 500 jumped 52 to 929, its 5.9% gain the biggest since late March while the Nasdaq rallied for the ninth straight week up 20, or 1.2%, to 1739. The Russell 2000 gained 25, or 5.1%, to 512 which puts it up 46% in the last nine weeks, Sir.

That’s amazing Watson. I wouldn’t have thought the market would have interpreted the news as positive but I have to tell you Watson, I do like these glasses. Everyone’s wearing them you say? Makes sense, I do feel better since I’ve put them on.

Since you seem to have followed the action pretty closely, Watson, what went on in the credit markets?

Well Sir, 3 month Libor was set at 93bps on Friday, which was the first time it has been below 1%. Below 1%, Watson, has that ever happened before? No Mr. Holmes, it hasn’t and if you remember it was as high as 4.87% just last October.

So Treasuries rising as well, Watson? Only the yields Sir, which you know is not good for prices. Yes, I know Watson, yields up; prices down, go on. Well Sir, Government debt is trading at yields we saw last November with the 10-year yield rising 13bps this week closing on Friday at 3.30% and the Long Bond yield rose even more, 19bps, which put that rate at 4.28% late Friday. People do seem to be concerned with how much debt it will take to finance the stimulus package, Sir.

So has that pushed up yields on Corporate debt as well Watson? No Mr. Holmes, spreads actually came in last week. Those CDX indexes you follow, well the Hi-Yield number is down to 1010 after closing last Friday at 1123 and the Investment Grade numbers were 143 this Friday versus 164 last Friday.


Well seems like people aren’t concerned about too much then Watson. Come to think of it, there probably isn’t anything to worry about. Where did you say you got these glasses from Watson?

Enjoy.

Jim Delaney