Spreads were tighter in the US today as all the indices improved (with Series 12 at contract tights and outperforming the off-the-runs). 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 outperformed pushing the skew wider, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew.
The names having the largest impact on IG are American Express Company (-45bps) pushing IG 0.32bps tighter, and Textron Financial Corp (+42.23bps) adding 0.31bps to IG. HVOL is more sensitive with American Express Company pushing it 1.49bps tighter, and Textron Financial Corp contributing 1.45bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both National Rural Utilities Cooperative Finance Corporation (-30bps) pushing the index 0.29bps tighter, and Toll Brothers, Inc. (+7.5bps) adding 0.08bps to ExHVOL.
The price of investment grade credit rose 0.47% to around 96.89% of par, while the price of high yield credits rose 1.18% to around 75.81% of par. ABX market prices are higher (improving) by 0.16% of par or in absolute terms, 1.03%. Broadly speaking, CMBX market prices are lower by 0.02% of par or in absolute terms, 0.06%. Volatility (VIX) is up 1.28pts to 37.83%, with 10Y TSY rallying (yield falling) 6.8bps to 2.86% and the 2s10s curve steepened by 0.4bps, as the cost of protection on US Treasuries rose 0.2bps to 49.2bps. 2Y swap spreads widened 1.5bps to 58.25bps, as the TED Spread widened by 0.8bps to 0.96% and Libor-OIS deteriorated 0.4bps to 93.6bps.
The Dollar weakened with DXY falling 1.34% to 84.635, Oil falling $2.13 to $50.11 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 5.6% today (a 5.42% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $14.2 to $893.55 as the S&P rallies (853.5 0.11%) outperforming IG credits (171.5bps 0.48%) while IG, which opened tighter at 182bps, underperforms HY credits. IG11 and XOver11 are -1.75bps and -10.7bps respectively while ITRX11 is -2.85bps to 154.4bps.
The majority of credit curves steepened as the vol term structure flattened with VIX/VIXV rising implying a more bullish/less volatile short-term outlook (normally indicative of short-term spread compression expectations).
Dispersion fell -1.9bps 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.
58% of IG credits are shifting by more than 3bps and 61% of the CDX universe are also shifting significantly (more than the 5 day average of 58%). The number of names wider than the index increased by 1 to 50 as the day's range rose to 14bps (one-week average 9.9bps), between low bid at 170 and high offer at 184 and higher beta credits (-2.88%) outperformed lower beta credits (-2.43%).
In IG, wideners were outpaced tighteners by around 4-to-1, with 22 credits wider. By sector, CONS saw 19% names wider, ENRGs 13% names wider, FINLs 19% names wider, INDUs 21% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 152.73bps and the latter at 169.38bps.
Cross Market, we are seeing the HY-XOver spread compressing to 412.55bps from 451.82bps, and remains below the short-term average of 442.75bps, with the HY/XOver ratio falling to 1.48x, below its 5-day mean of 1.49x. The IG-Main spread compressed to 17.1bps from 25bps, and remains below the short-term average of 23.64bps, with the IG/Main ratio falling to 1.11x, below its 5-day mean of 1.15x.
In the US, non-financials outperformed financials as IG11 ExFINLs are tighter by 5.3bps to 169.4bps, with 82 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 0.97bps to 228.21bps, with Finance names (worst) wider by 11.03bps to 957.83bps, Brokers (best) tighter by 6bps to 276.08bps, and Banks tighter by 6.17bps to 301.02bps. Monolines are trading tighter on average by -44.02bps (1.95%) to 2268.97bps.
In IG12, FINLs underperformed non-FINLs (1.31% tighter to 3.05% tighter respectively), with the former (IG11 FINLs) tighter by 6.5bps to 486.4bps, with 15 of the 21 names tighter. The IG CDS market (as per CDX) is 15.2bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (186.65bps), with the bond ETFs underperforming the IG CDS market by around 10.13bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 4.58bps to 152.73bps (with ITRX FINLs -trading sideways- weaker by 4.1 to 161.1bps) and is currently trading tight to its week's range at 0%, between 166.06 to 152.73bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading tight to its week's range at 1.11%, between 109.66 to 106.14bps. ExHVOL outperformed LoVOL as the differential compressed to -15.36bps from -7.84bps, but remains below the short-term average of -6.91bps. The Main exFINLS to IG ExHVOL differential decompressed to 61.91bps from 58.03bps, and remains above the short-term average of 59.69bps.
commentary compliments of www.creditresearch.com
Index/Intrinsics Changes (from Thursday’s close)
CDR LQD 50 NAIG091 -9.54bps to 253.72 (4 wider - 45 tighter <> 37 steeper - 13 flatter).
CDX12 IG -10.75bps to 171.5 ($0.47 to $96.89) (FV -5.96bps to 217.88) (23 wider - 96 tighter <> 84 steeper - 41 flatter) - Trend Tighter.
CDX12 HVOL -19bps to 426 (FV -12.41bps to 578.24) (6 wider - 23 tighter <> 21 steeper - 9 flatter) - Trend Tighter.
CDX12 ExHVOL -8.14bps to 91.13 (FV -4.2bps to 120.49) (17 wider - 78 tighter <> 27 steeper - 68 flatter).
CDX11 XO -11.8bps to 531.1 (FV -8.35bps to 535.75) (5 wider - 28 tighter <> 24 steeper - 11 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+1.21 to $75.84 / -51.2bps to 1275.1 (FV -8.88bps to 1237.84) (21 wider - 68 tighter <> 59 steeper - 32 flatter) - Trend Tighter.
LCDX10 (55% recovery) Px $+0.92 to $76.47 / -65.33bps to 1343.2 - Trend Tighter.
MCDX11 -6.75bps to 215bps. - No Trend.
CDR Counterparty Risk Index fell 3.29bps (-1.43%) to 225.89bps (6 wider - 9 tighter).
DXY weakened 1.34% to 84.64.
Oil fell $2.13 to $50.11.
Gold rose $14.2 to $893.55.
VIX increased 1.28pts to 37.83%.
10Y US Treasury yields fell 6.2bps to 2.86%.
S&P500 Futures gained 0.11% to 853.5.
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