UK faces quite considerable headwinds
UK banking system not in strong position to lend
UK recession put downward pressure on inflation
BOE has bought GBP 96 billion of assets in APF
"If you withdraw stimulus too quickly face risk of renewed downturn"

Deja vu all over again: failed green shoot, no volume, high beta break out, one or two brokers gunning the SPY (here's looking at you 85 Broad): the tried and true script over the past 3 months seems to have a little life left in it still, with all rational cash players sitting on the sidelines as always, doing Starbucks breaks every hour and waiting for the release of RenTec's results indicating Medallion made double the combined negative "return" of REIF and RIFF (and JPM torn between trading for the latter and its own Highbridge).

The second most favorite German soap opera on Zero Hedge (just after the Volkswagen - Porsche melodrama) looks set for a second season. Bloomberg reporting that lenders who hold half of Conti's humongous €11 billion debt load will do all they can to prevent the merger. It's funny it took lenders only about a year to get their case of buyer's remorse sufficiently well crystallized.

Hi-fi quants are like pigs in a trough today, driving the market on horrible new home sales numbers just as State Street is back to its usual antics and (or as a result of which) Fidelity disclosing no IWM borrow available. In the meantime, Moody's has released its Credit Card Index update: charge off rates for May have now surpassed 10%.

Jim Cramer was spot on with calling the housing bottom. Oh wait - he was dead wrong again about this as he is about everything else: downward prior revision and lower than expectations. At least he is consistent at batting 0: almost as good as someone batting 1000.

The name of the game last week was the roll, with the expiration of the June contract leading to over $300 billion in Matured Transactions. New protection creation was delayed into the roll and this week will likely see a comparable pick up in new protection purchasing.

Zero Hedge discussed a few months ago the fact that the ratings agencies consider distressed exchange offers essentially equivalent to an event of default. If that is the case, then Raiffeisen Bank is basically bankrupt: one of Austria's biggest banks with massive Eastern European exposure has recently launched an exchange offer for €500 million of notes (ISIN: XS0253262025) at 55 cents on a dollar, to be exchanged into new notes yielding 15%!

As many readers have been requesting data on both intro and intermediate CDS topics, I am posting a paper on one of the most fundamental credit derivative concepts: how to equate CDS pricing levels with those of cash bonds. As new concepts emerge, more explanatory information will be provided. Enjoy the paper - compliments of Maiden Lane I.

First it was Extended Stay, which filed for bankruptcy last week (and whose unexpected filing may make life for CMBS participants very complicated as the law of unintended consequences strikes again). Today, it is budget hotel chain Red Roof Inn. The company, which owns 210 hotels, defaulted on $367 million of mortgage debt, has a total of $1.2 billion in total debt, including mezz loans and other notes. The company was purchased a mere 2 years ago by Citigroup (yep, the same phenomenal deal makers who wouldn't know how to find their gluteus maximum with a magnifying glass, bought a 79% stake in yet another toxic piece of garbage) from Accor SA for $1.3 billion.

Or maybe the correct question is "what wasn't" especially for the past 3 months... I touched earlier upon the pain that is still to be unleashed upon the autosuppliers when I discussed the Visteon CDS auction. However, it seems the credit market is already on top of this. A brief observation of the CDS (and to an extent the equity) levels of TRW and American Axle indicates that over the past week something has really spooked longs in the names.

Strange day, with VWAP reversion ruling on no volume as has been the norm over the past 3 months. Liquidity was so hard to come by that 2,000 bps TICK swings were almost a norm in the second half of the day, yet the SPY closed virtually unchanged. 2s10s gyrated wildly after the $40 billion 2 year auction which cleared at a 1.151% yield vs. a 1.202% expected, and closed practically unchanged.

Spreads were mixed in the US with IG marginally worse, HVOL a smidge wider, ExHVOL weaker, XO wider, and HY rallying (as intraday ranges were generally half their average levels). Indices generally outperformed intrinsics (with curves flattening and rolls decompressing as unwinds seem the theme of the week) with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew.