Friday, April 17, 2009

Daily Credit Market Summary: April 17 - Diverging Drama

Spreads were mixed in the US today with IG worse, HVOL improving, ExHVOL weaker (thanks to high beta short-squeeze), XO stronger, and HY selling off. Indices typically underperformed single-names (for the fifth day in a row) with skews mostly narrower as IG underperformed but narrowed the skew (to its tightest of 2009), HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew (to almost zero), XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

The names having the largest impact on IG are International Lease Finance Corp. (-80.87bps) pushing IG 0.48bps tighter, and American International Group, Inc. (+63.32bps) adding 0.3bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 2.22bps 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 Avnet Inc. (-25bps) pushing the index 0.26bps tighter, and Lowe`s Companies, Inc. (+10bps) adding 0.11bps to ExHVOL.

The price of investment grade credit fell 0.15% to around 96.66% of par, while the price of high yield credits fell 0.07% to around 75.56% of par. ABX market prices are higher (improving) by 0.02% of par or in absolute terms, 0.02%. Broadly speaking, CMBX market prices are higher (improving) by 0.03% of par or in absolute terms, 0.11%. Volatility (VIX) is down -1.85pts to 33.82%, with 10Y TSY selling off (yield rising) 11.3bps to 2.95% and the 2s10s curve steepened by 4.8bps, as the cost of protection on US Treasuries fell 1bps to 42.5bps. 2Y swap spreads widened 3bps to 60.5bps, as the TED Spread tightened by -1.5bps to 0.97% and Libor-OIS improved 1.1bps to 90.4bps.

The Dollar strengthened with DXY rising 0.88% to 85.981, Oil rising $0.21 to $50.19 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.41% today (a 1.3% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $8.54 to $867.16 as the S&P rallies (870.2 1.01%) outperforming IG credits (177.38bps -0.16%) while IG, which opened tighter at 173bps, underperforms HY credits. IG11 and XOver11 are +3.5bps and -4.42bps respectively while ITRX11 is +0.5bps to 148.5bps.

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 fell -3.1bps 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.

52% of IG credits are shifting by more than 3bps and 61% of the CDX universe are also shifting significantly (less than the 5 day average of 65%). The number of names wider than the index stayed at 48 as the day's range rose to 8.5bps (one-week average 9.1bps), between low bid at 171 and high offer at 179.5 and higher beta credits (-2.18%) outperformed lower beta credits (-1.36%).

In IG, wideners were outpaced by tighteners by around 3-to-1, with 28 credits wider. By sector, CONS saw 38% names wider, ENRGs 19% names wider, FINLs 24% names wider, INDUs 14% names wider, and TMTs 9% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 148.38bps and the latter at 148.37bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 465.53bps from 458.25bps, but remains above the short-term average of 447.65bps, with the HY/XOver ratio rising to 1.57x, above its 5-day mean of 1.53x. The IG-Main spread decompressed to 28.88bps from 25.63bps, but remains above the short-term average of 23.84bps, with the IG/Main ratio rising to 1.19x, above its 5-day mean of 1.16x.

In the US, non-financials outperformed financials as IG ExFINLs are tighter by 2.9bps to 148.4bps, with 60 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 0.68bps to 207.64bps, with Brokers (worst) wider by 0.5bps to 247.58bps, Finance names (best) tighter by 29.43bps to 914.21bps, and Banks tighter by 7.31bps to 263.2bps. Monolines are trading tighter on average by -77.27bps (2.64%) to 2635.49bps.

In IG, FINLs outperformed non-FINLs (2.18% tighter to 1.94% tighter respectively), with the former (IG FINLs) tighter by 9.9bps to 445.2bps, with 11 of the 21 names tighter. The IG CDS market (as per CDX) is 8.6bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (168.79bps), with the bond ETFs outperforming the IG CDS market by around 11.28bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 0.21bps to 148.38bps (with ITRX FINLs -trending tighter- weaker by 3.34 to 149bps) and is currently trading tight to its week's range at 0%, between 157.31 to 148.38bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading in the middle of the week's range at 55.54%, between 107.12 to 104.66bps. ExHVOL underperformed LoVOL as the differential decompressed to -0.53bps from -8.52bps, and remains above the short-term average of -7.97bps. The Main exFINLS to IG ExHVOL differential compressed to 42.88bps from 52.45bps, but remains below the short-term average of 54.76bps.

commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -3.14bps to 228.89 (19 wider - 25 tighter <> 19 steeper - 31 flatter).

CDX12 IG +3.75bps to 177.38 ($-0.15 to $96.66) (FV -4.08bps to 194.45) (30 wider - 70 tighter <> 50 steeper - 72 flatter) - No Trend.

CDX12 HVOL -14bps to 405 (FV -11.5bps to 510.85) (9 wider - 19 tighter <> 12 steeper - 18 flatter) - Trend Tighter.

CDX12 ExHVOL +9.36bps to 105.5 (FV -2.02bps to 107.54) (21 wider - 74 tighter <> 52 steeper - 43 flatter).

CDX11 XO -8bps to 425.4 (FV -10.02bps to 482.86) (8 wider - 22 tighter <> 14 steeper - 20 flatter) - Trend Tighter.

CDX12 HY (30% recovery) Px $0 to $75.63 / 0bps to 1286.2 (FV -36.02bps to 1139.82) (20 wider - 74 tighter <> 70 steeper - 25 flatter) - Trend Tighter.

LCDX10 (55% recovery) Px $-0.19 to $76.42 / +13.16bps to 1349.59 - No Trend.

MCDX11 0bps to 190bps. - No Trend.

CDR Counterparty Risk Index rose 0.68bps (0.33%) to 207.64bps (10 wider - 5 tighter).

CDR Government Risk Index fell 0.67bps (-0.98%) to 67.44bps.

DXY strengthened 0.88% to 85.98.

Oil rose $0.21 to $50.19.

Gold fell $8.54 to $867.16.

VIX fell 1.85pts to 33.82%.

10Y US Treasury yields rose 11.3bps to 2.95%.

S&P500 Futures gained 1.01% to 870.2. Sphere: Related Content
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