The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.
There were no major economic releases today but one under-appreciated indicator that came out was the Federal Reserve’s Senior Loan Officer Survey. The survey assesses credit conditions using a wide-ranging assessment of various loan markets as seen by loan officers at banks around the country. This quarter’s release was very good news with respect to credit conditions, with increased demand for loans across commercial & industrial, mortgage, commercial real estate, and consumer lending verticals. While the release isn’t extraordinarily useful as a stand-alone assessment, it does offer a nice qualitative support to our observation of loan growth acceleration; not only is the supply of loans growing, their demand is as well.
After a vertiginous selloff late last week (and partially fueled by large amounts of equity volatility) credit spreads as measured by the Markit CDX High Yield index of credit default swaps traded on a range of high yield companies came off recent highs. It’s not clear whether this is a rally driven by profit taking on short positions or possibly a pause on the way to more aggressive widening, but the charts at right show the key takeaway: credit had a good day today relative to its recent history.
A market supporting the move lower in credit spreads was the volatility market for equities. The index moved off three month highs from intraday Friday to more moderate 15.12 close today, a change of 1.91 index points, which means implied volatility over the coming month is 15.12% annualized.