Corporate Bond Market Grinding to a Halt

Oct. 2.08 | About: American Express (AXP)

The IG 10 spread is trading 186/188. I did not obtain a closing quote on this yesterday but it opened around 170.an

Insurance company bonds are getting spanked as Harry Reid demonstrated that he sorely lacks financial markets savvy with his senseless comment that there is an insurance company on the verge of bankruptcy. CDS on insurance company names blew out by 150 basis points this morning.

Met Life cash bonds are 25 basis points to 50 basis points wider.

The market in my opinion is on the verge of ceasing to function. Here is an example. I have followed the saga in this space of the most recently issued 5 year American Express bond. It is a scary story. The bond was issued on a Friday in August at a spread of 4 3/8 percentage points over the 5 year Treasury. That was a shocking event as the company was forced to pay over 100 basis points more than the levels at which outstanding Amex paper was trading. But that is what they needed to do to get the deal done.

The paper was on a relative value basis cheap, and it began to gradually edge tighter. The most expensive level which I had observed was 370 basis points over the 5 year note. That was just before this latest iteration of the crunch erupted.

Earlier this week the issue was about 500 basis points cheap to the benchmark Treasury.

Just several minutes ago as I prepared to write this I spoke with one of my regular corporate bond sources and he said that his firm was actually offering $4million of this bond at 650 basis points over the 5 year Treasury.

The market in my mind is on the verge of shutting down. There is sand in the gears and the machine is about to break down on the side of the road.

It is nearing the time when my next post will be an obituary for the fixed income market.