A swath of buy- and sell-siders are anticipating material widening in the weeks to come and attribute the recent tightening to investors covering shorts and picking up recently cheapened high-beta names. As a result many are dubbing last week's surprising rally among high-beta credits "the dead cat bounce."
Mitch Stapley, portfolio manager at Fifth Third Asset Management in Grand Rapids, Mich., is anticipating another round of widening. "The 'dead cat bounce' analogy is fairly accurate as we're taking a breather," he commented. Investors have been taking advantage of recently widened high-beta names to pick up some yield and cover shorts, he added, noting Fifth Third recently picked up SBC Communications 5 5/8s of '16 that had widened out to 70 basis points over Treasuries but tightened to 57bps over last week.
Arthur Tetyevsky, managing director and chief U.S. credit strategist at HSBC Securities, attributed the recent tightening to traders and buy-side accounts covering shorts and anticipates the market will widen an additional 10-15bps in coming weeks. "Technicals have been so strong the market has tightened beyond fundamental value," he explained, noting credit fundamentals remain strong and "this is not going to be 2002 all over again." Stapley agreed, saying "there is still another shoe left to drop."
