Loans Versus Bonds Relative Value: Week of July 16

The divergence in loan and bonds trends has picked up marginally, with the bond universe wider by 8 bps to 968 bps and loans tighter by 22 to 471 bps. Mostly noise in the subset of 30 companies, except for the traditional yoyo TRW whose bonds and loans both screamed tighter by 410 bps and 130 bps, respectively. Is there any fundamental reason for this? Of course not.

Source: LoanConnector

Comments

[lizzy36]

In law school they taught us that like definitions r a necessary starting point. 

I think my basic fuck up is not understanding the proper definition of "fundamentals". 

Or maybe my fuck up is believing they some how matter.  Or perhaps Dennis Kneale is just smarter than i am........

[Anonymous]

He's on tv, of course he's smarter than you

[VegasBD]

If the major financial firm Goldman Sachs had a broadcast network that reported on the markets....would we watch it?

Then why do people watch CNBC that is owned by the major financial firm GE?

Not that dissimilar.

[jongreen]

How should we read this from a macro perspective? Let me take a stab and the smarter population around here can correct me.

1. Bonds are generally pricier than loans for corporate finance
2. Bonds are increasing in price (to the business issuing them)
3. Either prices are going up due to decreasing capital available for bonds, or increased perception of risk towards the underlying firms
4. Loans are decreasing in price
5. Perhaps even though capital is available, lending standards are tough, and more firms are not being allowed in the door...maybe due to shaky collateral/outlook?
6. Maybe firms would rather pay more for bonds than loans with current uncertainty. Is it easier to screw over bondholders or loan holders in a crunch?

[convexity]

Actually:

1. Loans are pricier, and becoming richer

2. Forget prices (it can be misleading given the underlying treasury movement), more appropriately, SPREADS are tightening on both, but loans are tightening faster.

3. Again, risk premiums (spreads) are tightening ergo, the market is demanding lett compensation to lend money.  they are asking for less still from loans given the seniority in the capp structure and more favorable default recovery observations.

4. I think we have beaten this one to death

5. Loans are not getting done, but unsecured debt (cash bonds) have seen massive new issuance (this has contributed to the spread compression)

6. much easier to screw a bondholder than a loan given secured nature of the debt and the covenants that protect the loan holder. THat said, ther is no longer a rule of law in the capital markets anymore (see GM & C) you can thank the current admin. for that.

[finan_learn]

Does that mean the risk apetite hasnt returned as some people are preaching?

Could someone please explain this more in laymens terms? For example, spreads are tightening, with respect to what?