Restaurants, movies, amusement and recreation and child day-care combined lost 83,000 suggesting the impact of September 11. Despite a decline on Friday, US markets, led by technology shares, rallied this week due in part by optimism that the government will help revive the economy. Though some traders say gains this week may be short lived because the economy could be headed into a recession, many investors are easing into the market with the belief there may be a recovery in the second half of 2002. Spreads for investment grade names were on average 5-7 basis points tighter on the week. Phone names outperformed and were 15-20 basis points tighter in some cases.
Liquidity is good for on the run names but is still disjointed in second tier names.
The deal was very well received and more than six times oversubscribed on the fixed tranches. Performance in this environment depends on how you hedge. Fast prepayments have been factored in prices and extension risk is a growing concern. The municipal bond market traded higher this week, as crossover buyers provided support to the market. The ratio of municipals as a percentage of Treasuries remains cheap, attracting crossover buyers.