Events are moving quickly, potentially making commentaries out of date even before they are published. In what can only be described as the most eventful period for credit in memory, spread levels took on an air of panic during the month as fears about the banking system cascaded through the credit markets, leaving prices lower, spreads wider and price discovery yet more arduous.Having now accepted the imminency of recession, inflation expectations were also marked lower during the month. Short dated expectations dropped by 30-50bps with marginal reductions on longer dated maturities. As investors sought out short-term stability and re-assessed their inflation expectations, the gilt yield curve began to "normalise" such that longer dated yields exceeded those at the short end of the curve.Having forecast such a move in previous months, this is a scenario which we believe has further momentum as long dated real yields approach more realistic levels. Specific performances were notable only in their drastic nature. Financials bore the brunt of mark-downs with Anglo Irish Bank, Morgan Stanley and Goldman Sachs much lower despite the intervention of Government (in Anglo's case) and equity injections (MS & GS) which should lend support to credit valuations.
