Abdullah Karatash
There is a growing focus on credit quality
It was a weak day in credit with flows trending lower despite higher stocks; the feeling was not quite carnage-like but it was not far.
Most players continue to sell into strength as opposed to adding any risk.
The bifurcation today saw the investment grade and high yield credit index at the all the time wide levels with bank/financial CDS (credit default swap) still fairly well bid (and cash bonds lower).
Credit likely still has some catching up to do with the massive stock sell-off of the past few weeks.
If we are indeed in recessionary territory from a macroeconomic standpoint, high grade credit spreads have further room to widen.
Share buybacks by cash-rich corporations to prop up their falling stock prices will not be constructive for credit.
For investors, there is a growing focus on credit quality / name recognition and ultimately liquidity.
Off the run bonds continue to under-perform relative to on-the-run bonds.
Treasury bonds sold off lightly with many an analyst now calling loudly for Treasury yields to get below 1% on the 10 year Treasury bond.
That seems like a stretch.
Ultimately inflation expectations should stop Treasury yields from getting too low although the flight-to-quality bid will remain strong in the interim.
Oil failed to budge even as the end-game nears for the extravagantly dressed Colonel Qaddafi.
As an aside, Goldman Sachs CEO LIoyd Blankfein hired a high profile Washington defense attorney.
There is chatter that there could be fall-out from Goldman's dealings with Libya's sovereign wealth fund.
Players hoping for a panacea for the markets from Fed Chairman Ben Bernanke's Jacksonhole musings later this week will be in for a surprise; there is little that the Fed can do.
Driving that home, Gold prices fast approach $1,900 an ounce, an all-time nominal high.
New home sales numbers are out tomorrow.
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