US Credit Opening Update

SOVX and Fins in Europe have led the market wider.  Both indices are out 7 bps, and the fin sub index is out 20 bps, having blown out 25 bps to 330 at one point earlier. Main and XOVER were marginally wider, and IG and HY are both opening a touch lower.  So far it looks like the weakness is confined to the weakest sovereigns and to the European banks. Will it be contained there? Possibly as market has grown bored with the headlines, but if it does manage to break through, watch out as the market generally seems long. Cash is doing okay, but very quiet.

Credit Update

Credit markets bounced with stocks.  We are seeing more and more evidence that treasuries are becoming the key to follow.  IG and HY both finished marginally better on the day, reversing earlier losses.  Credit managed to shrug off rating agency comments on German banks.  Both IG and HY are trading cheap to fair value and got very quiet during the bounce.  Feels like people are a bit too short these now but nothing major as it didn't feel particularly squeezy.  Europe is probably better near term short and it does feel like the bears are just as happy to be at holiday parties as the bulls and barring any significant news event we will bounce around with a fairly neutral bias until next year.

Credit Markets

On back of a weak Spanish auction SOVX is 4 wider. The European fins opened 3 wider on Snr and 5 on Sub.  Snr are still 3 wider, but Sub has moved to flat. Feels like people taking off the Snr/Sub trade -- why pay the carry for the next couple weeks? Main and IG are both 1 wider and HY is opening a touch lower. MCDX which had good performance yesterday is also a touch wider this morning. Futures have been bouncing around a little, anywhere from a flat opening to up 0.5%. Treasuries have renewed their sell-off. They are little changed right now, but at one point overnight had been higher. We may get a slight lift at the open, but unless Philly Fed comes in strongly, the rest of the data and Fedex was mixed enough that we will leak lower on the day.