Tuesday, April 14, 2009

Daily Credit Market Summary: April 14 - Skew's The Limit

Spreads were mixed in the US today with IG worse, HVOL improving, ExHVOL weaker, XO stronger, and HY selling off. Indices typically underperformed single-names with skews mostly narrower (as index arb remains active) as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.

The names having the largest impact on IG are Alcoa Inc. (-65.71bps) pushing IG 0.51bps tighter, and American International Group, Inc. (+61.61bps) adding 0.29bps to IG. HVOL is more sensitive with Alcoa Inc. pushing it 2.35bps tighter, and American International Group, Inc. contributing 1.37bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Omnicom Group (-24bps) pushing the index 0.24bps tighter, and CSX Corporation (+7bps) adding 0.07bps to ExHVOL.

The price of investment grade credit fell 0.25% to around 96.61% of par, while the price of high yield credits fell 0.25% to around 75.63% of par. ABX market prices are higher (improving) by 0.1% of par or in absolute terms, 0.22%. Broadly speaking, CMBX market prices are lower by 0.09% of par or in absolute terms, 0.27%. Volatility (VIX) is down -0.14pts to 37.62%, with 10Y TSY rallying (yield falling) 7.8bps to 2.78% and the 2s10s curve flattened by 5.4bps, as the cost of protection on US Treasuries fell 6.2bps to 43bps. 2Y swap spreads tightened 0.5bps to 57.75bps, as the TED Spread widened by 1.5bps to 0.97% and Libor-OIS improved 1.1bps to 92.9bps.

The Dollar weakened with DXY falling 0.03% to 84.607, Oil falling $0.76 to $49.29 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 0.93% today (a 1.55% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $5.3 to $888.55 as the S&P is down (841.9 -1.42%) underperforming IG credits (178bps -0.26%) while IG, which opened wider at 173.5bps, outperforms HY credits. IG11 and XOver11 are +5bps and -1.3bps respectively while ITRX11 is -0.02bps to 154.38bps.

The majority of credit curves flattened 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 +0.6bps 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 increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.

58% of IG credits are shifting by more than 3bps and 68% of the CDX universe are also shifting significantly (more than the 5 day average of 62%). The number of names wider than the index decreased by 2 to 48 as the day's range fell to 8bps (one-week average 9.4bps), between low bid at 172 and high offer at 180 and higher beta credits (-2.91%) outperformed lower beta credits (-2.27%).

In IG, wideners were outpaced by tighteners by around 6-to-1, with 14 credits wider. By sector, CONS saw 5% names wider, ENRGs 13% names wider, FINLs 19% names wider, INDUs 18% names wider, and TMTs 4% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 154.98bps and the latter at 164.47bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 419.67bps from 407.97bps, but remains below the short-term average of 431.62bps, with the HY/XOver ratio rising to 1.49x, above its 5-day mean of 1.48x. The IG-Main spread decompressed to 23.62bps from 17.6bps, but remains below the short-term average of 24.27bps, with the IG/Main ratio rising to 1.15x, above its 5-day mean of 1.15x.

In the US, non-financials underperformed financials as IG ExFINLs are tighter by 5bps to 164.5bps, with 76 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 7.75bps to 218.53bps, with Finance names (worst) tighter by 6.17bps to 949.4bps, Banks (best) tighter by 9.75bps to 289.59bps, and Brokers tighter by 7bps to 262.58bps. Monolines are trading wider on average by 46.46bps (1.85%) to 2310.59bps.

In IG, FINLs underperformed non-FINLs (1.07% tighter to 2.94% tighter respectively), with the former (IG FINLs) tighter by 5.2bps to 478.4bps, with 12 of the 21 names tighter. The IG CDS market (as per CDX) is -8.2bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (186.24bps), with the bond ETFs outperforming the IG CDS market by around 6.41bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) widened 2.25bps to 154.98bps (with ITRX FINLs -trending tighter- better by 9.1 to 152bps) and is currently trading tight to its week's range at 18.75%, between 164.73 to 152.73bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at -0.07%, between 109.66 to 105.24bps. ExHVOL underperformed LoVOL as the differential decompressed to -7.13bps from -16.44bps, but remains below the short-term average of -6.83bps. The Main exFINLS to IG ExHVOL differential compressed to 56.87bps from 62.99bps, and remains below the short-term average of 58.39bps.

commentary compliments of www.creditresearch.com

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -6.34bps to 248.33 (4 wider - 38 tighter <> 23 steeper - 27 flatter).

CDX12 IG +6bps to 178 ($-0.25 to $96.61) (FV -4.96bps to 213.05) (13 wider - 91 tighter <> 41 steeper - 84 flatter) - Trend Tighter.

CDX12 HVOL -1.5bps to 431 (FV -12.58bps to 565) (4 wider - 25 tighter <> 13 steeper - 17 flatter) - Trend Tighter.

CDX12 ExHVOL +8.37bps to 98.11 (FV -2.89bps to 117.71) (9 wider - 86 tighter <> 62 steeper - 33 flatter).

CDX11 XO -12.6bps to 518.5 (FV -8.13bps to 519.5) (2 wider - 30 tighter <> 24 steeper - 10 flatter) - Trend Tighter.

CDX12 HY (30% recovery) Px $-0.25 to $75.63 / +10.4bps to 1282.2 (FV -41.3bps to 1210.29) (10 wider - 75 tighter <> 67 steeper - 23 flatter) - Trend Tighter.

LCDX10 (55% recovery) Px $+0.1 to $76.6 / -6.77bps to 1332.14 - Trend Tighter.

MCDX11 -5bps to 210bps. - No Trend.

CDR Counterparty Risk Index fell 7.75bps (-3.42%) to 218.53bps (5 wider - 10 tighter).

CDR Government Risk Index fell 4.76bps (-6.38%) to 69.86bps.

DXY weakened 0.03% to 84.61.

Oil fell $0.76 to $49.29.

Gold fell $5.3 to $888.55.

VIX fell 0.14pts to 37.62%.

10Y US Treasury yields fell 7.6bps to 2.79%.

S&P500 Futures lost 1.42% to 841.9. Sphere: Related Content
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Anonymous said...

The equity markets did not move lower today because of the lower retail number. As Larry Kudlow explained, the retails sales number was actually a "good thing."

Therefore, the only rational explanation for the markets' decline was market manipulation by terrorist-loving short sellers. Period.

Anonymous said...

Well, if Kudlow said it than it must be true.