Valens Credit Weekly: X – Significant liquidity, sizable market cap, and robust recovery rate indicate that credit markets are overstating credit risk

March 24, 2021

Featured Top Idea
X – United States Steel Corporation
Trade: Write 5yr CDS (409bps)
Trade: Buy 2025 6.875% Bonds, CUSIP: 912909AM0 (6.492% YTW, 2.102 % iYTW)
Trade: Buy 2026 6.250% Bonds, CUSIP: 912909AN8 (6.547% YTW, 2.117% iYTW)

Aggregate Credit Market and Credit Fundamental Review
The IG market is currently fairly valued. HY and XO markets have seen CDS move wider than iCDS again recently even after markets have normalized. Overall, costs of borrowing rose dramatically due to coronavirus concerns, before stabilizing again recently thanks to the Fed’s actions to calm markets. While the overblown reaction in credit markets has since moderated, HY and XO markets remain mispriced.