Cumberland Advisors Market Commentary – Credit Spreads

Author: David R. Kotok, Post Date: August 6, 2020

We track many spreads at Cumberland and circulate a key summary of them every morning. For this public commentary I extracted the ones you see below (the last 7 items are the key ones to examine) because they help tell the story of how the Fed’s activities have decreased risk pricing in the financial markets.

Cumberland Advisors - Credit Spreads

We’ve selected the morning of August 4 (the “Today” column) and three other key dates to demonstrate the time comparison. The December 31 date shows the spreads before all the COVID-19 risk events happened in US markets; March 31 is within days of the extreme. The “Today” and “Last Week” columns demonstrate how these credit spreads are stabilizing at the present levels. Obviously things are much improved from March. Equally obvious is that spreads are much higher (more risk in market prices) than they were pre-COVID. As long as these credit spreads remain stable or keep narrowing, it is likely that other financial metrics will improve and stock prices will maintain their upward trajectory. At Cumberland, our US ETF portfolios are mostly fully invested and have small cash reserves.

Note: If the chart below loses formatting and doesn’t render properly on your computer or mobile device, please use this link to see a JPEG version: Credit Spreads Chart August 2020 v1

Chart Data Source: Bloomberg
LIBOR (Prior Business Day) Today Last Week 3/31/2020 12/31/2019
1m 0.157 0.16113 0.98938 1.7994
3m 0.249 0.26063 1.45013 1.9446
6m 0.3035 0.3155 1.072 1.9208
1y 0.44675 0.46133 0.9685 2.0043
Alternative Rates Today Last Week 3/31/2020 12/31/2019
Secured Overnight Financing Rate (SOFR) 0.09 0.1 0.01 1.53
Broad General Collateral Rate (BGCR) 0.07 0.07 0.01 1.5
Tri-party General Collateral Rate (TGCR) 0.07 0.07 0.01 1.5
LIBOR Forward (compounded semi-annually) Today Last Week 3/31/2020 12/31/2019
3*6 0.359320698 0.371701804 0.735312582 2.156326842
6*12 0.598908427 0.616344361 0.868487061 2.215823222
FRA Composite Today Last Week 3/31/2020 12/31/2019
3*6 0.213 0.221 0.525 1.723
6*12 0.238 0.244 0.407 1.699
Difference (Libor Forward- FRA Composite)
Today Last Week 3/31/2020 12/31/2019
3*6 0.146321 0.150702 0.210313 0.433327
6*12 0.360908427 0.372344361 0.461487061 0.516823222
Today Last Week 3/31/2020 12/31/2019
FED Funds Effective 0.1 0.1 0.1 1.55
Fed Futures Implied Rate
Sep-20 0.07 0.07 0.06
Dec-20 0.05 0.04 0.07
Mar-21 0.02 0.02
T-Bills Today Last Week 3/31/2020 12/31/2019
3m 0.09 0.08 0.01 1.55
6m 0.1 0.08 0.09 1.58
1y 0.11 0.1 0.12 1.49
Treasury Today Last Week 3/31/2020 12/31/2019
2y 0.111 0.111 0.23 1.593
5y 0.203 0.22 0.377 1.709
10y 0.531 0.533 0.684 1.923
30y 1.221 1.196 1.313 2.372
Today Last Week 3/31/2020 12/31/2019
Eonia -0.467 -0.468 -0.445 -0.457
Today Last Week 3/31/2020 12/31/2019
ESTR (Euro Short-trem Rate) ESTRON -0.551 -0.552 -0.528 -0.542
Today Last Week 3/31/2020 12/31/2019
Ted Spread (3M T-bill) 0.16407 0.15922 1.4552 0.38848
Today Last Week 3/31/2020 12/31/2019
S&P US IG Corp Average Yield vs GT10 Spread 127 bps 132 bps 285 bps 88 bps
Today Last Week 3/31/2020 12/31/2019
Spread between Prime and Gov MM 10.452 bps 10.348 bps 75.571 bps 34.148 bps
Today Last Week 3/31/2020 12/31/2019
Moody’s Baa Corp Index  vs GT10 263 bps 261 bps 402 bps 197 bps
Today Last Week 3/31/2020 12/31/2019
HYG Indicated Yield vs GT10 427 bps 431 bps 518 bps 236 bps
Today Last Week 3/31/2020 12/31/2019
CCC Corps OAS (BCAUOAS) 1004 bps 1020 bps 1726 bps 857 bps
Today Last Week 3/31/2020 12/31/2019
HY Corps EX Energy vs GT10 428 bps 441 bps 763 bps 285 bps
Today Last Week 3/31/2020 12/31/2019
CCC ex Energy (BNRCOAS) 834 bps 850 bps 1427 bps 757 bps

Chart Data Source: Bloomberg


David R. Kotok
Chairman of the Board & Chief Investment Officer
Email | Bio

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