Did They Also Miscalculate my Paycheck?

The Treasury market has caught a bit of a bid after the ISM Non-Manufacturing report came out a bit weaker than last month. There is also a rumor than there was a calculation error in the ADP report from yesterday. Given the tepid nature of the rally here, I doubt many traders believe the rumor.

Corporates look steady, with media a little wider, but everything else a mixed bag. I favor A-rated bonds over lower-rated issues, as my models show BBB’s and high-yield are still stupid rich. If you’re bearish on the economy, this is an easy call. Even if you aren’t, keep in mind that default rates ebb and flow more related to credit conditions and less with GDP growth. We go through a period when credit is easy and some loans are made (or bonds sold) that shouldn’t have. It takes 2-4 years for the actual defaults to happen. The easy credit of 2003-2005 is coming into that 2-4 year window now.