Investment Grade Credit had a really solid week. It might not win best actor in the market, but it turned in a really nice performance, generating total returns of around 70 basis points for the week (our best guess right now, before all the data is in…), and excess returns compared to treasuries of about 8 basis points. The long end was once again the star – for the month of February, long Corporates were up close to 2%, with excess returns of over 1%. Credit overall was up around 1% in February, with excess returns of around 60 basis points.
What’s interesting is that there was a lot going on this week – both on the economic front and the geopolitical front – that could have derailed the market for credit. But after a run of weak data which has been mostly discounted due to weather, we ended up with strong housing numbers and durable goods orders, which helped support spreads. And the saber rattling over the Ukraine seemed enough to keep a lid on rates. Finally, Janet Yellen’s weather-delayed testimony on Thursday seemed to give both rates and risk a bit of a boost. We know she’s not saying anything much different than her predecessor – asset purchases will be reduced at a measured pace, they are continuing with their program, but they will react to any significant change in the outlook. There’s just something soothing about how she says it. Janet Yellen definitely gets our vote for best actress.
The new issue market responded with about $30 billion in supply this week – the biggest week since early January. Cisco was by far the largest issuer, bringing $8 billion across 7 tranches; bonds were well priced, and we think they were among the better performers this week. 3 year bonds did especially well, tighter by 11 basis points, while the 10 year was tighter by 3. Goldman Sachs, Williams Partners, Juniper Networks, Fifth Third Bank, and CMS Energy were all in the market this week, and all performed well, but our vote for best supporting actor goes to Cisco based on the sheer audacity of their performance.
Next week we are expecting to see another $20 billion in supply; that number may go higher if this week’s drama has a happy ending. And for best screenplay, the winner is…