Credit analyst sees stability in corporate credit spreads supporting bids

By Ronda Fears

Nashville, March 26 - Corporate spreads appear immune to the war-related gyrations seen in other markets, said CreditSights analyst Louise Purtle in a report Wednesday, and the technical bid is likely to continue with the stability even more valued going forward.

"Corporate spreads have withstood the onset of hostilities in Iraq and the consequent volatility in the equity and Treasury market with admirable equanimity and Tuesday's action was no exception as the index OAS closed unchanged on the day," she said in the report.

Aggregate spreads were 161 basis points at the beginning of March when the market was still nervously anticipating an actual invasion, she said, and one week into the war they are just marginally tighter at 159 bps on Tuesday.

The bid has been similarly evident in the credit default swap market, she said, noting the Goldman Sachs credit default swap index was 119 at the beginning of the month and is currently 116.

"The extent of this 'no response' may seem surprising given the substantial multi-session rally and subsequent sharp reversal in equities and the opposing price action in Treasuries," Purtle said.

"However, the phenomenon of corporate 'immunity' to broader market gyrations has actually been in place for the last six months. The equity and Treasury markets have vacillated during this time on the ebb and flow of geopolitical and economic developments but the corporate sector, buoyed by technicals that remain highly reminiscent of those that drove the market's performance in 2001, has walked its own path and spreads have continued to grind tighter."

This divergence was most notable in early March, she said, as both equities and treasury yields came within a whisker of the lows they made last October before rejecting them with vigor. Corporates widened 7 bps during this time and then moved back in, she noted, never giving full realization to an anticipated buying opportunity.

"In the final week of the month with the usual pressure on mangers to put cash balances to work the market's ability to remain impervious to bad news is likely to remain in evidence," she said.

"With volatility likely to remain elevated in several asset classes for months to come as these events play out, the continued immunity of corporate spreads to the surrounding squall will be ever more valued. The bid goes on."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.