Loans Versus Bonds Relative Value: Week of October 8

Some marginal and long overdue divergence between bonds and loans, with the Sealy negative basis again being the most notable event. Loans tightened by 10 bps to 391 bps, while bonds widened by the same amount to 716 bps. Looking at the weekly comparison chart demonstrates that the bulk of activity is due to general noise, resulting from equity market carryover, while the two actual movers were Cenveo loans wide by 245 and Mediacom, which tightened by 372 bps. At this point expect the credit complex to continue being a derivative of the algo trading dominated equity market which grinds higher on imaginary volume breadth.

Source: LoanConnector

Comments

[Renfield]

OK, forgive my ignorance, here to learn. Trying not to get drool on the keyboard.

Does this imply that up to now, one would be short loans and long bonds, and this might be starting to change?

Or am I completely hopeless on this? I must admit I'm only commenting to ask, in the hope that some analysis might help me to understand the implications of this information.

Plus I hate the sound of crickets on a thread that would be very informative to me if my reading skills were less ordinary...

[InExile]

While sympathetic to the point of this analysis, it assumes that there are enough market players who can take advantage of the disconnect in value.  Loans are complex from a legal and adminstrative perpsective for many institutional investors. Loans require a different infrastructure.  We should be comparing CDS indices (i.e loans vs high yield bonds).