Tuesday, March 31, 2009

The Debts of the Spenders: Bond Traders Remain Skeptical of Equity Rally

The pictures speak for themselves. Junk continues to trade as junk while even the investment grade (IG) or highly rated stuff has seen a pullback off the "January Effect" fund manager recovery level of 500 basis pts spread or so. I feel that I must explain things more.

For those who do not already know - the way to read these charts is simple.

#1) Go to the bottom of this web page.
#2) You will find a CMBX indices link there. Click it.
#3) Now you can see the basis pt spreads! In general the HIGHER the basis pt spreads the WORSE the underlying situation. The spreads are listed on Markit's web site but it helps for visual purposes to be able to see the graphs. Some of these indices have been trading at near bankruptcy levels for a while now (especially the HY, high yield - aka junk bonds) . But others are more closely watched and have been very volatile in recent months (for ex. the AAA stuff).


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