Goldman Sachs is already closing the trade recommendation, barely a day into 2013. One of the recommendations was taking a longer position in the high yield market by shorting CDX HY Series 19, an index of credit insurance on high-yield debt.
That trade was actually introduced on November 19th, and recognized as the “top trade” of the year in a memo to Goldman Sachs clients on December 4th.
Since that, the CDX HY Series 19 index has fallen exponentially. Charles Himmelberg, a Goldman credit strategist says that regardless of the fact that they are already closing out the trade recommendation, it’s their “highest conviction call in 2013.”
In a note today, Himmelberg wrote: “While our top trade has hit its target somewhat sooner than we had expected, HY remains our highest conviction call in 2013.
At 439bp, synthetic HY spreads are trading inside levels last seen in the first quarter of 2011.
This has clearly eroded valuations, but we still expect HY spreads (both in the cash and synthetic markets) to grind tighter this year, especially once we are past the fiscal headwinds of the first quarter.”
Time will only tell if Himmelberg is right.
Wentworth Jones | Elite.