Market Overview
Stability amidst instability
Most credit market indices continued to offer a glimmer of hope in February in the midst of a marketplace fixated on declining equity values. At the end of February, the year-to-date loss on the S&P 500 stood at 18.18%. The S&P National Municipal Bond Index increased 0.40% on the month for a year-to-date (YTD) gain of 4.10%. The index weighted average yield to maturity as a percentage of the 10yr treasury declined to 139% from 144% at the end of January, and from 204% at the end of 2008. Stability remained the story in the leveraged loan market as the S&P/LSTA U.S. Leveraged Loan 100 Index declined only 0.35% in February for a year-to-date gain of 7.98%. In the CDS market, spreads generally widened across the market in February, most significantly in the high-yield space.
The S&P CDS U.S. High-Yield Index declined 4.73% with a corresponding spread increase from 1231 at the start of February to 1414 at month end, while the S&P 100 CDS Base Index declined a modest 0.16% on the month, as the spread increased by 4bps to 136. The yield on the U.S. treasury benchmark 10-year note increased 18bps in February to 3.02% and has increased 81bps year-to-date. Most global treasury yields increased as well. This, coupled with an increase in the value of the U.S. dollar, led to a 2.32% monthly decline in the S&P/Citigroup International Treasury Bond Index. The index had a yearto- date loss of 8.22% at the end of February. Commercial paper yields, as measured by the S&P U.S. Commercial Paper Index, increased about 4bps on the month to 0.67%. Year-to-date, the index has returned 0.19% and the weighted average YTM has declined 9bps to 0.67% from 0.76% at the end of December. Since the end of 2008, the spread of the weighted average YTM of the S&P U.S. Commercial Paper Index over the 3-month T-bill has declined 26bps to 42, from an end of December spread level of 68.
Index Performance and Market Overview
Oasis
The S&P National Municipal Bond Index has been fairly stable in 2009 amidst declines in the U.S. treasury and equity markets. Year-to-date, the index has increased 4.10% on the back of a 0.40% gain in February. Due to recent declines in muni-bond yields and a sharp pick-up in treasury yields, the weighted average YTM of the index over the 10yr treasury declined to 139% at the end of February from a level of 204% at the end of December. Securities from New York have outperformed the broad index, as evidenced by the S&P New York Municipal Bond Index February gain of 0.68% and a year to- date increase of 4.40%. Year-to-date, the weighted average YTM of the national index has declined 32bps to 4.19% at the end of February with longer dated securities providing the majority of the index price appreciation. The weighted average YTM of index securities with 20 or more years to maturity has declined about 56bps in 2009. At the end of 2008, the yield of these securities averaged about 6.10%, compared to their end of February yield near 5.54%. Shorter maturity securities were the laggards in February, as evidenced by the 0.37% loss in the S&P National 0-5 Index. Year-to-date, however, the 0-5 index has returned +0.93% and the weighted average YTM has declined 42bps to 1.98%. Over the same period, the yield on the U.S. government 2yr note has increased 20bps, and the percentage of the yield on the S&P National 0-5 Index over the 2yr declined to 204% at the end of February, from 307% at the end of December.
February 2009 Versus February 2008
Since February of 2008, the index weighted average modified duration has increased to 7.57, from 6.11, while the weighted average yield to worst has decreased to 4.05% from 4.54%. This is a result partially from the fact that the index was expanded in August of 2008, due to lowering the issue par amount eligible for index inclusion. The index weighted average years to maturity has decreased by about a year to 14.28 from 15.22.
