Zero Hedge

Spreads were mixed in the US today with IG worse, HVOL improving, ExHVOL weaker, XO wider, and HY selling off. Indices generally outperformed intrinsics 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's skew increased as the index outperformed, and HY outperformed but narrowed the skew.

The names having the largest impact on IG are Textron Financial Corp (-19.36bps) pushing IG 0.13bps tighter, and Hartford Financial Services Group (+137.71bps) adding 0.91bps to IG. HVOL is more sensitive with Textron Financial Corp pushing it 0.63bps tighter, and Hartford Financial Services Group contributing 4.31bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Ingersoll-Rand Company (-15bps) pushing the index 0.16bps tighter, and Constellation Energy Group Inc. (+19.5bps) adding 0.18bps to ExHVOL.

The price of investment grade credit fell 0.13% to around 95.85% of par, while the price of high yield credits was flat at around 68.63% of par. ABX market prices are lower by 0.27% of par or in absolute terms, 0.77%. Broadly speaking, CMBX market prices are lower by 0.01% of par or in absolute terms, 0.03%. Volatility (VIX) is down 1.4pts to 43.41%, with 10Y TSY rallying (yield falling) 4.5bps to 2.67% and the 2s10s curve steepened by 1bps, as the cost of protection on US Treasuries fell 2bps to 60bps. 2Y swap spreads widened 1.8bps to 57.5bps, as the TED Spread tightened by -9bps to 0.99% and Libor-OIS improved 0.5bps to 97.4bps.

The Dollar weakened with DXY falling 0.51% to 85.43, Oil rising $0.66 to $49.07 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.05% today (a 0.85% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $2.86 to $918.7 as the S&P rallies (790.3 0.77%) outperforming IG credits (195.5bps -0.14%) while IG, which opened tighter at 189.5bps, underperforms HY credits. IG11 and XOver11 are +1.25bps and -1bps respectively while ITRX11 is +1bps to 173bps.

The majority of credit curves steepened as the vol term structure steepened with VIX/VIXV decreasing implying a more bearish/more volatile short-term outlook (normally indicative of short-term spread decompression expectations).

Dispersion rose +8.9bps in IG. Broad market dispersion is a little greater than historically expected given current spread levels, indicating more general discrimination among credits than on average over the past year, and dispersion decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.

Only 34% of IG credits are shifting by more than 3bps and only 55% of the CDX universe are also shifting by that much (less than the 5 day average of 65%). The number of names wider than the index stayed at 49 as the day's range rose to 10bps (one-week average 9.25bps), between low bid at 188.5 and high offer at 198.5 and higher beta credits (0.65%) underperformed lower beta credits (-0.39%).

In IG, wideners outpaced tighteners by around 1-to-1, with 35 credits wider. By sector, CONS saw 14% names wider, ENRGs 31% names wider, FINLs 38% names wider, INDUs 25% names wider, and TMTs 43% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 171.44bps and the latter at 186.06bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 746.03bps from 745.03bps, but remains above the short-term average of 710.4bps, with the HY/XOver ratio rising to 1.79x, above its 5-day mean of 1.77x. The IG-Main spread decompressed to 22.5bps from 20.38bps, but remains above the short-term average of 20.29bps, with the IG/Main ratio rising to 1.13x, above its 5-day mean of 1.12x.

In the US, non-financials underperformed financials as IG11 ExFINLs are tighter by 0.3bps to 186.1bps, with 51 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 3.44bps to 265.02bps, with Finance names (worst) tighter by 6.26bps to 1182.55bps, Brokers (best) tighter by 12.5bps to 339.58bps, and Banks tighter by 3.57bps to 357.5bps. Monolines are trading wider on average by 38.72bps (1.12%) to 2859.81bps.

In IG12, FINLs underperformed non-FINLs (2% wider to 0.14% tighter respectively), with the former (IG11 FINLs) wider by 10.8bps to 553.6bps, with 9 of the 21 names tighter. The IG CDS market (as per CDX) is -14.7bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (210.2bps), with the bond ETFs outperforming the IG CDS market by around 6.68bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 0.94bps to 171.44bps (with ITRX FINLs -trending wider- weaker by 1.25 to 179.25bps) and is currently trading at the wides of the week's range at 100%, between 171.44 to 161.25bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 99.99%, between 107.79 to 102.46bps. ExHVOL underperformed LoVOL as the differential decompressed to 2.92bps from -0.89bps, but remains above the short-term average of -4.03bps. The Main exFINLS to IG ExHVOL differential compressed to 60.73bps from 64.84bps, and remains below the short-term average of 64.76bps.

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -2.89bps to 289.08 (14 wider - 27 tighter <> 26 steeper - 24 flatter).

CDX12 IG +3.37bps to 195.75 ($-0.14 to $95.84) (FV +11.03bps to 232.25) (36 wider - 57 tighter <> 71 steeper - 52 flatter) - Trend Wider.

CDX12 HVOL -3bps to 464 (FV +7.02bps to 652.98) (9 wider - 15 tighter <> 19 steeper - 11 flatter) - Trend Wider.

CDX12 ExHVOL +5.38bps to 111.04 (FV -0.08bps to 133.28) (27 wider - 68 tighter <> 42 steeper - 53 flatter).

CDX11 XO +3.2bps to 557 (FV +9.63bps to 587.77) (13 wider - 14 tighter <> 13 steeper - 21 flatter) - Trend Tighter.

CDX11 HY (30% recovery) Px unch $68.25 / 0bps to 1692.5 (FV +44.83bps to 1305.59) (44 wider - 40 tighter <> 31 steeper - 66 flatter) - Trend Wider.

LCDX10 (55% recovery) Px $+0.12 to $72.97 / -10.4bps to 1606.99 - Trend Wider.

MCDX11 -1.25bps to 232.5bps. - Trend Wider.

CDR Counterparty Risk Index fell 3.24bps (-1.21%) to 265.22bps (6 wider - 9 tighter).

DXY weakened 0.51% to 85.43.

Oil rose $0.65 to $49.06.

Gold rose $2.86 to $918.7.

VIX fell 1.4pts to 43.41%.

10Y US Treasury yields fell 4.8bps to 2.67%.

S&P500 Futures gained 0.71% to 789.9.

Summary provided compliments of http://www.creditresearch.com/ Sphere: Related Content

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