Credit spreads have enjoyed a very nice week as shown below by the Markit Investment Grade CDS Index. A drop in the index represents a decrease in the cost to insure a broad basket of corporate debt against default.
The reopening of the on-the-run ten-year yesterday was a record setter in both size and performance. It was the biggest reopening ever at $20 billion and was also 55.3% bought by indirect bidders, the best ever by a reopening. The yield blew through the market rate by 2 bps, meaning that the price paid at the auction was higher than the market at the time and set the stage very well for the 30-year auction today. Fears that foreign demand will be missing for longer duration auctions were quieted yesterday so the main challenge facing today’s auction is gone. 30’s have also sold off a good bit since the announcement last week, which may also help them catch a bid today. Yes, believe it or not, many investors think the 30-year looks cheap at 4.3%.
Cliff J. Reynolds Jr., Investment Analyst
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