Loans Versus Bonds Relative Value: Week of August 6

It's official: irrational exuberance in the secondary market is back. Indicative loans are now at just over 400 bps while bonds are less than double that at 761 bps. Of course, everyone at this point has forgotten the expectation of 20% defaults in HY names by the end of 2009. All shall be well in 5x+ leveraged consumer names wich make mattresses. Not sure if the Sealy loans trading 450 bps outside of bonds is real or not, but who really cares: the bond squeeze could easily push it so tight you would have to pay the company to hold their CCC-rated toxic paper.

Next week: look for loans to trade as wide as US CDS, with bonds squeezed to nano bps over zero.


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