MichaelJ, makosgu, sle: I saw this guy James Bianco on CNBC. He showed a chart of how the corporate spreads and the SP500 track each other pretty closely. He implied, at least recently, that the SP500 is playing catchup with widening (yields) corporate default spreads, e.g., GM paper. He has a website that I have perused. For example: http://www.arborresearch.com/biancoresearch/redirectFromOldDomain.html (You need to go to products - I cannot directly link that) I had never really considered this line of thought and wondered if someone here had done the research. nitro
Oh, that's where you're going - GM is a very liquid name and people are tracking it rather closely. I'd not be surprized if every once in a while credit/paper market will be a touch faster then the equity market. It might be an interesting thing to look at - is there a lagged correlation between CDS spreads and equity/futures.
Been sitting here calculating the iShares credit spread (LQD/IEF) and it's correlation to the CBOT 10Y/10Y Swap (TED Credit Spread).. If my calculations are correct, going back the past 90 days or so ( 1/25/05 - 4/22/05) we have seen a general tightening of the corporate spread. Anyone here with significant daily use of the CDS sector care to confirm this? According to my calculations, the LQD/IEF spread has exhibited the following averages: 90D Average: 26.37 90D Avg Spread Change: -0.03 I broke the data I had into 4 segments, and looked at the LQD. I added IEF (relative value % on the chart), and according to relative value measures, from around 3/15/05 until 4/15/05 the IEF was 'lagging' behind LQD with respect to a relative change in price. The daily avg spread change during that period for the basis (if you will call it that) was -0.34 In summary, those who actually DO stare at the Credit spread mkt care to comment and verify/refute my hypothesis that the corp credit spread since Jan has seen a overall tightening? Enlighten us. Share the knowledge, that's why we're here (most of us)
I've found that credit spreads have a decent correlation with VIX/VXO/VXN; which makes sense intuitively. Since debt is senior to equity, if risk premiums on corporate debt are increasing in the aggregate; stock prices <i>should</i> be falling and, therefore, volatility rising.
this is the CDX Hvol NA series 3 (5-year) one of the biggest indices for higher volatility investment grade credit spreads (over LIBOR, not treasuries) 2004 December was pretty much multi-year tight levels for credit spreads GM & F blowing out recently is the catalyst for the increase
Hmm. The swap spreads actually rallied in the past few months, first we went from 40 bps down to 38 but then to 44.5 in the past month. Similarily, bba credits rallied to like 110 from about 170 but then sold off a quite a few weeks ago back into lower 180 as GM story came up. that's what I see from were i sit.
My numbers were derived from the 'spread' of LQD vs IEF, the 2 equities.. I managed to log in and get some CDS quotes for today, man.. GM got a bit wider: GMAC 1YR: 399 +67 GMAC 2YR: 494 +72 GMAC 3YR: 593 +77 GMAC 4YR: 622 +79 GMAC 5YR: 640 +80 GMAC 7YR: 656 +81 GMAC 10YR: 673 +82 GM 5YR: 838 +96 Looking at GM5YR, the Avg spread is 467.7. At 3/31/05 the GM5 spread was at 460 Pretty amazing. Thanks to the person who posted the CDS chart for 5YR index. That correlates to the data I have. The LQD/IEF spread was the other person's idea, perhaps you can shed some light on your methodology.
MichaelJ- I also noticed that KMG (Kerr-McGee)'s 5YR spread hit 200, avg for that is 77.3. PXD (Pioneer Natural Resources) 5YR at 130, avg is 60.0 Those 2 names from the data I had as of 1:35PM EDT indicated no change in the spread of of that time, but still, a widening there. Perhaps some worry in the Oil & Gas sectors?