Monday, March 30, 2009

Daily Credit Market Summary: March 30

Zero Hedge is starting a daily comprehensive credit market summary compliments of the good folks at Credit Derivatives Research (much more useful daily commentary and analysis can be found at the site). We hope our readers find it useful.


Spreads were broadly wider in the US today as all the indices deteriorated. Indices typically underperformed single-names with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

The names having the largest impact on IG are American International Group, Inc. (-72.7bps) pushing IG 0.35bps tighter, and International Lease Finance Corp. (+153.65bps) adding 0.83bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 1.68bps tighter, and International Lease Finance Corp. contributing 3.95bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Sempra Energy (-2bps) pushing the index 0.02bps tighter, and Wells Fargo & Company (+27.5bps) adding 0.27bps to ExHVOL.

The price of investment grade credit fell 0.36% to around 95.98% of par, while the price of high yield credits fell 1.5625% to around 68.69% of par. Volatility (VIX) is up 4.5pts to 45.69%, with 10Y TSY rallying (yield falling) 4.6bps to 2.72% and the 2s10s curve steepened by 1.8bps, as the cost of protection on US Treasuries rose 4.78bps to 62bps. 2Y swap spreads tightened 0.1bps to 54.25bps, as the TED Spread tightened by -1.8bps to 1.08% and Libor-OIS deteriorated 0.2bps to 98bps.

The Dollar strengthened with DXY rising 0.89% to 85.869, Oil falling $3.9 to $48.48 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 6.8% today (a 6.56% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $6.4 to $916.75 as the S&P is down (785.1 -3.8%) outperforming IG11 credits (192.5bps 4.83%) while IG, which opened wider at 189bps, outperforms HY credits. IG10 and XOver10 are +9.5bps and +37.5bps respectively while ITRX10 is +7.5bps to 172bps.

In IG, wideners outpaced tighteners by around 12-to-1, with 111 credits wider. By sector, CONS saw 86% names wider, ENRGs 81% names wider, FINLs 86% names wider, INDUs 89% names wider, and TMTs 100% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG11 exFINLs) with the former trading at 170.56bps and the latter at 186.59bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 743.32bps from 696.99bps, and remains above the short-term average of 705.11bps, with the HY/XOver ratio rising to 1.78x, above its 5-day mean of 1.77x. The IG-Main spread decompressed to 20.5bps from 19.13bps, and remains above the short-term average of 19.77bps, with the IG/Main ratio rising to 1.12x, below its 5-day mean of 1.12x.

In the US, non-financials outperformed financials as IG12 ExFINLs are wider by 7.4bps to 186.6bps, with 6 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 12.18bps to 268.99bps, with Banks (worst) wider by 20.61bps to 361.61bps, Finance names (best) wider by 54.16bps to 1190.25bps, and Brokers wider by 12.31bps to 351.89bps. Monolines are trading tighter on average by -135.3bps (3.67%) to 2825.77bps. In IG11, FINLs outperformed non-FINLs (3.21% wider to 4.14% wider respectively), with the former (IG11 FINLs) wider by 17bps to 545.2bps, with 3 of the 21 names tighter. The IG CDS market (as per CDX) is 21.3bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (213.76bps), with the bond ETFs outperforming the IG CDS market by around 5.79bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 6.62bps to 170.56bps (with ITRX FINLs -trending wider- weaker by 11 to 177.75bps) and is currently trading at the wides of the week's range at 100%, between 170.56 to 161.25bps, and is trending wider. Main LoVOL (sideways trading) is currently trading at the wides of the week's range at 100.06%, between 106.55 to 102.46bps. ExHVOL underperformed LoVOL as the differential decompressed to -1.05bps from -4.83bps, but remains above the short-term average of -6.11bps. The Main exFINLS to IG ExHVOL differential compressed to 65.06bps from 65.37bps, but remains below the short-term average of 66.21bps.

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +11.27bps to 290.44 (47 wider - 3 tighter <> 22 steeper - 28 flatter).

CDX12 IG +8.87bps to 192.5 ($-0.36 to $95.98) (FV +18.1bps to 231.56) (112 wider - 8 tighter <> 37 steeper - 86 flatter) - Trend Wider.

CDX12 HVOL +9bps to 462 (FV +21.81bps to 648.17) (26 wider - 4 tighter <> 8 steeper - 22 flatter) - No Trend.

CDX12 ExHVOL +8.83bps to 107.39 (FV +5.34bps to 133.42) (86 wider - 9 tighter <> 66 steeper - 29 flatter).

CDX11 XO +7.3bps to 553.8 (FV -13.16bps to 586.83) (31 wider - 4 tighter <> 9 steeper - 26 flatter) - Trend Tighter.

CDX11 HY (30% recovery) Px $0 to $ / +83.8bps to 1690.8 (FV +56.95bps to 1293.23) (85 wider - 14 tighter <> 26 steeper - 73 flatter) - Trend Wider.

LCDX10 (55% recovery) Px $-1.6 to $72.75 / +132.66bps to 1627.87 - Trend Wider.
MCDX11 +5bps to 232.5bps. - Trend Wider.

CDR Counterparty Risk Index rose 11.65bps (4.54%) to 268.46bps (15 wider - 0 tighter).

DXY strengthened 0.89% to 85.87.

Oil fell $3.83 to $48.55.

Gold fell $6.5 to $916.65.

VIX increased 4.5pts to 45.69%.

10Y US Treasury yields fell 4.7bps to 2.71%.

S&P500 Futures lost 3.82% to 784.9.
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Anonymous said...

Since I'm not familiar with the credit markets, perhaps a quick summation of whether what happened in the day's events were "good" or "bad" and why would help?

Tyler Durden said...

The summary merely presents how all of the day's events translated into specific credit moves/changes. Summarizing the reasons for the moves would be, unfortunately, impossible, as it is all the things that happened today from the perspectives of all the markets' participants. the paragraphs have descriptive information on what were the catalytic events, and you can probably feed into what the caused these events. It should be used as a means to reconcile how you believe the market should have reacted with how it actually did. I would suggest reading literature on the concepts to get to know the nuances of CDS trading, as in my opinion credit markets (especially non-bond credit markets) are the most efficient.

Anonymous said...

bravo.. equities guys like us dont get this that often so we appreciate it.

Anonymous said...

what does "skew" mean in this context? my definitions pertain to statistical distributions or put/call implied volatility differences in the equity derivatives markets. thanks in advance.

Tyler Durden said...

simply FV to market price variation for an index. Fluctuates, but usually generated from dispersion of underlying names post index inception.

Anonymous said...

thanks TD

Anonymous said...

That Credit Derivatives Research site asked me for a username and password. Can I use your username/password until I get my account set up.

It might take a few months because my manager said data service subscriptions have been curtailed until further notice becuase of severe cutbacks.


Anonymous said...

Thanks - looking forward to more updates!