Archive - Jan 29, 2009

In another take on the previously discussed basis trade topic, a curious statistic that few have paid attention to is the significant premia new issues have offered to existing comparable CDS spreads on the same issuer. The definition of the new issue premium is the spread of the new issue versus the matched maturity CDS spread.

"New home sales drop to lowest level on record", down 14.7% from 388,000 in November (revised)

A statistic that may surprise some, is that January 2009 has seen a record amount of new Investment Grade issues: $104 billion so far. This easily surpasses the 2008 total of $83 billion. Granted, of this tally $61 billion is FDIC-guaranteed paper, but the $43 billion non-financial balance is still much higher than the $28 billion comparable in 2008 and $11 billion in 2007. Even more surprising is that 56% of new issues were BBB rated, up from 25% in December. This is summarized below:

A statistic that may surprise some, is that January 2009 has seen a record amount of new Investment Grade issues: $104 billion so far. This easily surpasses the 2008 total of $83 billion. Granted, of this tally $61 billion is FDIC-guaranteed paper, but the $43 billion non-financial balance is still much higher than the $28 billion comparable in 2008 and $11 billion in 2007. Even more surprising is that 56% of new issues were BBB rated, up from 25% in December. This is summarized below:

• Economy on the brink: durable goods orders plummet, unemployment benefits hit record high (Bloomberg here and here)
• Citi follows in Merrill footsteps, cancels boondoggles, cuts down on trips (NY Post)
• Ford burns $5.5 billion in cash, changes tune, might need bail ou
  

Tim Geithner is moving fast. In this addition to the US Treasury's website made available literally hours ago, he discloses a variety of TARP-related documents that had not been publicly available previously, most notable among them being this disclosure about the Targeted investment program that the Treasury has established w/r/t keeping Citi alive.

• Ruble rubble - currency crashes Wednesday by record 2.5% (Moscow Times)
• Latest "reflexivity" ruminations by George Soros (FT)
• House passes stimulus bill; not one republican votes for (Brutally Honest)
• Doom and gloom: economic pain to be "worst for 60 years" (

New DTCC weekly change numbers released for week ended January 23. Most notable is the huge gross notional and contractual amount of full terminations of consumer services CDS. Looks like funds are fully covering overhanging shorts. As this has been the most profitable position over the past 3 months it is not too surprising. Based on this technical data, we would recommend establishing short positions in the space due to the diminishing risk of a mass squeeze.

New DTCC weekly change numbers released for week ended January 23. Most notable is the huge gross notional and contractual amount of full terminations of consumer services CDS. Looks like funds are fully covering overhanging shorts. As this has been the most profitable position over the past 3 months it is not too surprising. Based on this technical data, we would recommend establishing short positions in the space due to the diminishing risk of a mass squeeze.