Loans Versus Bonds Relative Value: Week of November 19

Over the past two weeks, the highly leveraged fixed income market is stuck in a motionless void, with both bonds and loans barely budging. The trackable universe moved ever so slightly wider, with bonds 3 bps out to 668 bps, and loans 4 bps wider to 431. The spread is still at a record tight 237 bps, indicating that unless security priority ends up getting inverted courtesy of the Rattner doctrine, there is little if any additional convergence left. As we noted last week, positioning for a divergence trade may be one of the least risky postures as the credit bubble may be poised for popping. The problem of shorting loans (especially if one wishes to avoid JP Morgan's LCDS mindfuck) may be overcome if accounts merely call up Goldman Sachs and pull a Carl Icahn. Biggest loan mover wider was Sungard at about 125 bps, while West Corp tightened by almost 100 bps. In bonds the two notable names were First Data as a widener (seems tech has been getting pounded in debt), while MRI specialist Alliance Imaging and perpetual yoyo TRW Auto both ripped over 50 bps.