Loans Versus Bonds Relative Value: Week of September 24
Irrational exuberance in High Yield shows no sign of abating: the loan-HY bond spread is down to 2009 tights: a mere 326 bps for the represented universe of credits. Last week HY bonds averaged 710 bps, while loans were are 383 bps. For rational types, now is the time to consider some long loan-short bond basis packages, at a 1.0x:1.85x ratio. Also the negative loan-HY basis in Sealy continues, now at about 500 bps: either the data there is really faulty or somehow that relationship makes sense... in some parallel universe.
Big movers in the prior week were Mediacom loans moving wider by 150 bps and Neiman Marcus bonds caught in another squeeze, pushing them tighter by 130 bps. Overall loans widened by 6 bps while bond tightened by 34 bps.