C.M.O. 5.29.2009
Credit Market Overview
May 29, 2009
A quick look back on the three days that has been this post Memorial Day holiday shortened week so far has seen 54.37 S&P points of movement or about 6.13% of where the index stood last Friday vs. 19.83 S&P points worth of direction (up) equaling 2.24% or about 1/3rd of the total movement. Lot’s of motion, a lot less direction; on the surface at least.
The CDS indexes have gotten to the same place, almost no where, with a lot less effort. The Hi Yield CDX index moved a total of 10.1bps in the last three days but interestingly, none of that movement was wasted as it was all in the same direction, down. The Investment Grade index was doing fine on the efficiency front until yesterday with 4bps of total movement; down 2.10bps Tuesday and Wednesday and up 1.9bps yesterday for a net reduction of 2/10ths of a basis point. Scintillating stuff I can assure you!
The percentages get even more microscopic as the culmination of all of the Hi Yields index’s movement was only worth 9/10ths of a single basis point while, with magnifying glasses in hand, the move down in the Investment Grade index equaled just a little more than 1/10th of a basis point.
So, at this point it would seem reasonable to think that this minimal movement generated an equally small amount of trading in the CEC Portfolio, and that is exactly where you would be wrong.
Surprisingly, underneath the calm exterior of the indexes there, like a duck moving across a pond, has been a lot of work going on underneath. A total of 35 trades were made in the last three days. Nineteen of those brought money off the sidelines on to the long side; ten trades were initiated on the short side and six trades were made to close out previously placed positions.
Going into the long weekend the long/short balance was 45 long/42 short; today we sit at 58/51 respectively so like the indexes, both equity and CDS, the net change seems much less than what it took to get us there.
The “there” I speak of can be gleaned by looking at some of what went on. Energy and technology were the sectors most represented on the long side with names like, NE, RIG, CEC, WEC, NRG, SU, KMP and NXY being purchased in the first category and IGT and TXN in the second. Shorts included some home builders RYL and MDC; a retailer (or two) TGT and JWN.
There were also a few flip flops. DDS was purchased on Tuesday and sold yesterday and MON, originally purchased on 5/20/2009 was sold on the 27th and then shorted on the 28th.
Trading has been choppy but the long energy, short home builder and retailer theme does seem to be emerging.
With Memorial Day behind us we can officially say we are at least mentally within the bounds of summer even if the seasonal calendar does not put us there until the solstice on the 21st of next month.
It will be interesting to see whether these nascent themes grow into more established moves as the summer progresses.
Keep watching, you know I will be.
Enjoy the weekend.
Jim Delaney
