Jun 1, 2005

Corporate Spreads Still a Problem

From the FT:
The supply of new European corporate bond issues more than halved in May compared with the same period last year as borrowers were pushed to the sidelines amid the sharp volatility in the secondary market.
The supply of new bonds with investment-grade credit ratings reached just EUR6.875bn in May, down 52.5 per cent from the same month in 2004. The supply in the year to date is running 26 per cent below last year's levels, which ended up being 40 per cent weaker than 2003.
But the reason behind the low issuance in May and late April differed from that of the preceding months, in that it was the market that turned away from borrowers and not the other way round.
The article continues by discussing the return of investor demand in later May. Even so I think the trend of spread widening that started in March has a ways to go. Because of that I am leaning towards shorting stocks here but am patient to see where this rally goes. Seems like we could hang out around these levels for a few weeks.

Of course I am still watching TOL as a main tell. It seems like sentiment could keep squeezing it higher but it will be interesting to see how housing stocks can do if the market has a bad week.

Also watching silver and the yen to see if the dollar rally will run out of steam.

All in all not much to do.

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