Weekly S&P Fixed Income Update

With high demand for new loan issuance, the loan markets continue to move higher.  Bid prices for the S&P/LSTA U.S. Leveraged Loan 100 Index have closed over 90 every day since September 20 and now sit at 90.65.   Bid prices for the S&P/LSTA Performing Loans Index are at 93.66….

Weighted Average Bid Price on Total Return
10/7/2010 9/30/2010 6/30/2010 3/31/2010 12/31/2009              MTD     3rd Qtr 2nd Qtr 1st Qtr 2010
S&P/LSTA U.S. Leveraged Loan 100 (LL100)        90.65   90.46   88.35   91.76   87.68           0.69%   4.11%   -2.59%  4.23%   6.44%  
S&P/LSTA Leveraged Loan (LLI)   91.97   91.59   89.84   91.57   87.35           0.50%   3.32%   -1.24%  4.64%   7.30%  
S&P/LSTA Performing Loans       93.66   93.29   91.35   93.47   89.82           0.50%   3.49%   -1.39%  4.72%   7.40%  
S&P CDS U.S. High Yield Rolling Index   n/a     n/a     n/a     n/a     n/a             0.91%   2.16%   -3.16%  2.08%   1.91%

Bloomberg Tickers:
S&P/LSTA U.S. Leveraged Loan 100 Index: total return index value: SPBDLL
S&P/LSTA U.S. Leveraged Loan 100 Index: weighted average bid price: SPBDLLB

S&P/BGCantor U.S. Treasury Indices:

The yield of the S&P/BGCantor 5-7 Year U.S. Treasury Bond Index and S&P/BGCantor 7-10 Year U.S. Treasury Bond Index fell 16 bps since the end of September.  Yields for the S&P/BGCantor 20+ Year U.S Treasury Bond Index rose slightly, up 3 bps this week.  With the belly of the curve seeing the biggest drop, mid maturity bonds have produced the highest returns in October.

The S&P/BGCantor 20+ Year Treasury Bond Index has returned -0.41% this week.  The year to date return is still over 21%.  The shorter maturity indices have fared better this month with the S&P/BGCantor 3-5 Year U.S. Treasury Bond Index up 0.5%.   The S&P/BGCantor 7-10 Year U.S. Treasury Bond Index is the best performer this week, up over 1%.  Treasuries with maturities greater than 5 years are still performing extremely well on a YTD basis with all four of the longer date S&P/BGCantor Treasury Bond Indices returning now over 12.5% in 2010.  With short term rates being held at historic lows, T-bills have returned just 0.16% this year.

Index Yield to Maturity as of Total Return
10/7/2010 9/30/2010 6/30/2010 3/31/2010 1/4/2010 MTD     3rd Qtr 2nd Qtr 1st Qtr 2010
S&P/BGCantor U.S. Treasury Bill 0.15    0.15    0.16    0.16    0.1             0.00%   0.06%   0.06%   0.04%   0.16%  
S&P/BGCantor U.S. Treasury Bond 1.10    1.19    1.5     2       2.17            0.42%   2.29%   4.16%   1.01%   8.08%  

S&P/BGCantor 0-3 Month U.S. Treasury Bill       0.14    0.13    0.15    0.13    0.05            0.00%   0.04%   0.03%   0.01%   0.08%  
S&P/BGCantor 6-9 Month U.S. Treasury Bill       0.18    0.20    0.22    0.26    0.2             0.01%   0.08%   0.11%   0.09%   0.29%  
S&P/BGCantor 1-3 Year U.S. Treasury Bond        0.35    0.41    0.6     0.97    1.06            0.15%   0.63%   1.26%   0.71%   2.78%  
S&P/BGCantor 3-5 Year U.S. Treasury Bond        0.84    0.96    1.44    2.12    2.18            0.50%   2.50%   3.89%   1.29%   8.41%  
S&P/BGCantor 5-7 Year U.S. Treasury Bond        1.48    1.64    2.2     3.03    3.04            0.86%   3.89%   6.00%   1.65%   12.90% 
S&P/BGCantor 7-10 Year U.S. Treasury Bond       2.15    2.31    2.77    3.65    3.64            1.11%   4.49%   8.08%   1.53%   15.94% 
S&P/BGCantor 10-20 Year U.S. Treasury Bond      2.91    2.98    3.42    4.25    4.3             0.70%   5.50%   9.93%   1.72%   18.80% 
S&P/BGCantor 20+ Year U.S. Treasury Bond        3.69    3.66    3.88    4.69    4.63            -0.41%  4.84%   16.02%  0.15%   21.32%

S&P/Citigroup International Treasury Bond (Ex U.S.) Indices:

The dollar fell another 1.7% this week.   The spot dollar index (Bloomberg Ticker DXY) closed at 77.4.  With the continued weakness, the dollar is now in negative territory this year, down 0.61%.   Yields for both the S&P/Citigroup International Treasury Bond (Ex U.S.) Index and the S&P/Citigroup International Treasury Bond (Ex U.S.) 1 to 3 Year Index have dropped 8 bps since the end of September.  The effect of the falling dollar and yields dropping have been positive for USD investors in this asset class.   The composite index is up over 2% this month bringing the YTD return to almost 7%.  The 1 to 3 year index is up just over 3.5% on the year.

Index Index Level as of Total Return
10/7/2010 9/30/2010 6/30/2010 3/31/2010 12/31/2009 MTD     3rd Qtr 2nd Qtr 1st Qtr 2010
Intl Treasury ex US     235.730 230.780 206.510 215.700 220.720         2.14%   11.75%  -4.26%  -2.27%  6.80%  
Intl Treasury ex US 1-3yr       211.000 206.950 187.900 197.660 203.710         1.96%   10.14%  -4.94%  -2.97%  3.58%  

DXY – USD spot index    77.387  78.720  86.019  81.073  77.860          -1.69%  -8.49%  6.10%   4.13%   -0.61% 

Yield to Maturity on bps change in
10/7/2010 9/30/2010 6/30/2010 3/31/2010 12/31/2009 MTD 3rd Qtr 2nd Qtr 1st Qtr 2010
Intl Treasury ex-US YTM 2.49    2.57    2.54    2.41    2.49            -0.08   0.03    0.13    -0.03   0.00   
Intl Treasury ex-US 1-3 YTM     1.55    1.63    1.53    1.18    1.26            -0.08   0.10    0.35    -0.06   0.29

Bloomberg Tickers:

S&P/Citigroup International Treasury Bond Ex-US Index: total return index value: SPBDXUTR

S&P/Citigroup International Treasury Bond Ex-US Index 1-3 years: total return index value: SPBDXU3T

S&P International Corporate Bond Index:

As seen in the international treasury bond market, the positive effect of a falling dollar has pushed the S&P International Corporate Bond (ICB) Index higher in October.  Yields for the ICB Index have been flat this month.  Following an impressive third quarter, the ICB index is up almost another 2% this week bringing the YTD return to +8.51%   Yields for ICB are down 50 bps this year compared to no change for S&P/Citigroup International Treasury Bond (Ex U.S.) Index.  The drop in yields in the international corporate bond market have helped the ICB index outperform the international treasury indices this year.

Index Index Level as of Total Return
10/7/2010 9/30/2010 6/30/2010 3/31/2010 12/31/2009 MTD     3rd Qtr 2nd Qtr 1st Qtr 2010
Intl Corporate Bond TR  108.510 106.450 94.670  98.630  100.000         1.94%   12.44%  -4.02%  -1.37%  8.51%  

DXY – USD spot index    77.387  78.720  86.019  81.073  77.860          -1.69%  -8.49%  6.10%   4.13%   -0.61% 

Yield to Worst on bps change in
10/7/2010 9/30/2010 6/30/2010 3/31/2010 12/31/2009 MTD     3rd Qtr 2nd Qtr 1st Qtr 2010
Intl Corporate Bond YTW 3.39    3.38    3.64    3.61    3.89            0.01    -0.26   0.03    -0.07   -0.50

Bloomberg Tickers:

S&P International Corporate Bond Index: total return index value: SPBDICBT

US Credit Default Swaps:

As equity markets rallied this week, spreads for the broad benchmark S&P CDS Indices tightened across the credit spectrum.  CDS spreads for the companies captured in the S&P CDS U.S. High Yield Index have come in 24 bps since the end of September.  With spreads dropping, the total return of the high yield index is nearly +1% month to date, up almost 2% this year.  As a comparison, the S&P 100 Equity Index has jumped 1.78% this week following a nearly 11% rise in the third quarter.

Continuing to tighten this week, CDS spreads for S&P 100 CDS and S&P CDS U.S. Investment Grade indices are down 6 bps since the end of September.  With spreads falling, returns have been positive month to date.  Over the year, the two indices are still in negative territory with the IG index down 0.41%, the worst performance amongst the benchmark CDS indices.

Like the other CDS indices, spreads for the S&P CDS U.S. Homebuilders Sector Index tightened this week, lower by 6 bps.   On the year, the homebuilders index is the worst performing in the S&P CDS family, down over 1%.  Since the end of June, the S&P CDS U.S. Energy Select 10 Index has greatly outperformed the benchmark indices and all other S&P CDS sector indices posting a positive return over 5% since mid year.

Index Weighted Average Market Spread as of Spread % Change in
10/7/2010 9/30/2010 6/30/2010 3/31/2010 12/31/2009 MTD     3rd Qtr 2nd Qtr 1st Qtr 2010
S&P 100 CDS     71      77      88      68      55              -7.8%   -12.5%  29.4%   23.6%   29.1%  
S&P CDS US Investment Grade     114     120     135     100     88              -5.0%   -11.1%  35.0%   13.6%   29.5%  
S&P CDS US High Yield   468     492     535     453     450             -4.9%   -8.0%   18.1%   0.7%    4.0%   
S&P CDS US Homebuilders 308     314     300     227     245             -1.9%   4.7%    32.2%   -7.3%   25.7%  

Index Index Level as of Total Return
10/7/2010 9/30/2010 6/30/2010 3/31/2010 12/31/2009 MTD 3rd Qtr 2nd Qtr 1st Qtr 2010
S&P 100 CDS Rolling     103.08  102.77  102.19  103.15  103.22          0.31%   0.56%   -0.93%  -0.06%  -0.13% 
S&P CDS US IG Rolling   106.58  106.27  105.42  107.11  107.02          0.30%   0.80%   -1.57%  0.08%   -0.41% 
S&P CDS US HY Rolling   117.90  116.84  114.37  118.10  115.69          0.91%   2.16%   -3.16%  2.08%   1.91%  
S&P CDS US Homebuilders Rolling 110.50  110.22  110.59  114.39  111.77          0.26%   -0.34%  -3.32%  2.34%   -1.14% 
S&P 100 (equity) TR – OEX       883.81  868.35  784.57  892.59  853.28          1.78%   10.68%  -12.10% 4.61%   3.58%

Bloomberg Tickers:
S&P 100 CDS Rolling Index: total return index value: SPCDOR50
S&P CDS US Investment Grade Rolling Index: total return index value: SPCDIR50

S&P CDS US High Yield Rolling Index: total return index value: SPCDHR50

S&P CDS US Homebuilders Sector Rolling Index: total return index value: SPCDBR50

Source: BONDWorld – Standard & Poor’s