Dell bonds: too good to be true?

Spooz go up, Spooz go down.  Sometimes good news is good news (yay! no recession!) and sometimes it's bad news (boo! the Fed might hike!)  Yesterday was the latter on both counts, as  higher than expected headline CPI, housing starts, and industrial production prompted white eurodollars to their lowest close of the month and sent Spooz back towards the bottom of the last few weeks' range. 

Depending on your (most likely predetermined) view, you could read the chart as bullishly or bearishly as you like.  On the one hand, the SPX is tracing a nice flag-like channel that's just begging to be broken to the topside....

...and on the other, it's now in the process of threatening a little head and shoulders neckline.

Small wonder there's so much indecision in the market!

Of course, corporate supply is another issue hanging over the fixed income market.  After a torrent of issuance last week, Dell dropped the second largest offering of 2016 yesterday, raising $20 billion (increased from its initial size of $16 bio) from a book of bids reportedly totaling $87 billion.   And small wonder, too.  Ten year bonds at a juicy 425 bps over Treasuries (tightened from an initial indication of 475!) and 30 years at a whopping 575 over T (again, tighter by 50 bps from the initial indication) offer fixed income and credit investors something that they've seen precious little of: yield.   Indeed, these issues are all a lot wider than comparable bottom-of-the-investment-grade-barrel debt, which makes things look even better.

Of course, we've learned in the (by now seemingly distant) past that if something seems too good to be true, it probably is.  While that remains to be seen with these Dell bonds- because big tech mergers never go wrong, do they?- existing issues from Dell haven't all been smooth sailing, have they?  Here's an interesting thought experiment: would you rather own 10y Dell at 6% or 10y Greece at 7.25%?   Greece is more likely to default....but they're also much more likely to still exist in 10 years' time.

Elsewhere, the contrast between US and Uk CPI is really quite interesting.  Yesterday's US headline CPI surprised to the upside while that in the UK surprised to the downside.   One might normally expect that goods prices, many of which are traded on global markets and/or affected by global factors, would exhibit similar dynamics, whereas many services are non-tradeable and thus impacted by local dynamics.

Except in the case of the US and UK, the trend has been virtually identical for the past couple of years:

Clearly the issue with the UK is goods prices (as well as relative weightings within the CPI basket): as you can see, UK goods prices remain in deflation, essentially dragging down both headline and core from their US counterparts.

The divergence between the two headline measures over the past six months is notable.  Perhaps it's down to idiosyncratic factors (relative weightings, the elasticity of retail petrol prices to changes in crude prices, etc.)  One does wonder, though, how much Mark Carney or any other central banker can influence good prices.   There's little doubt, on the other hand, how much they can influence the price of (and demand for) bonds, and not just Dell's...