Spreads were mostly tighter in the US today amid very low liquidity with IG tighter, HVOL flat (index arb activity), ExHVOL better, XO stronger, and HY rallying. Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL underperformed but narrowed 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 CIT Group Inc (-216.87bps) pushing IG 1.11bps tighter, and American International Group, Inc. (+278.95bps) adding 0.96bps to IG. HVOL is more sensitive with CIT Group Inc pushing it 5.12bps tighter, and American International Group, Inc. contributing 4.43bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Dell Inc. (-15bps) pushing the index 0.16bps tighter, and Marsh & McLennan Companies, Inc. (+4.5bps) adding 0.05bps to ExHVOL.
The price of investment grade credit rose 0.36% to around 97.05% of par, while the price of high yield credits rose 1.88% to around 77.88% of par. ABX market prices are higher (improving) by 0.1% of par or in absolute terms, 0.23%. Broadly speaking, CMBX market prices are higher (improving) by 1.61% of par. Volatility (VIX) is down 1.87pts to 36.08%, with 10Y TSY selling off (yield rising) 8.7bps to 3.1% and the 2s10s curve steepened by 11.7bps, as the cost of protection on US Treasuries fell 3.71bps to 42bps. 2Y swap spreads tightened 0.8bps to 55.5bps, as the TED Spread widened by 0.3bps to 0.93% and Libor-OIS improved 0.8bps to 83.2bps.
The Dollar weakened with DXY falling 0.8% to 84.474, Oil rising $1.04 to $50.96 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.42% today (a 1.28% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $5.82 to $899.2 as the S&P rallies (869 2.02%) outperforming IG credits (168.5bps 0.37%) while IG, which opened tighter at 177bps, underperforms HY credits. IG11 and XOver11 are -9.75bps and -36.26bps respectively while ITRX11 is -8.25bps to 144bps.
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 rose +5.9bps 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.
68% of IG credits are shifting by more than 3bps and 73% of the CDX universe are also shifting significantly (more than the 5 day average of 63%). The number of names wider than the index increased by 1 to 42 as the day's range rose to 13.75bps (one-week average 8.63bps), between low bid at 164 and high offer at 177.75 and higher beta credits (-5%) outperformed lower beta credits (-4.26%).
In IG, wideners were outpaced by tighteners by around 10-to-1, with only 10 credits wider. By sector, CONS saw 0% names wider, ENRGs 25% names wider, FINLs 19% names wider, INDUs 7% names wider, and TMTs 0% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 142.53bps and the latter at 133.1bps.
Cross Market, we are seeing the HY-XOver spread compressing to 377.26bps from 417.49bps, but remains below the short-term average of 440.84bps, with the HY/XOver ratio falling to 1.46x, below its 5-day mean of 1.52x. The IG-Main spread compressed to 24.5bps from 24.75bps, but remains below the short-term average of 25.85bps, with the IG/Main ratio rising to 1.17x, below its 5-day mean of 1.17x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 7.3bps to 133.1bps, with 91 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 11.1bps to 231.01bps, with Finance names (worst) tighter by 58.54bps to 992.13bps, Brokers (best) tighter by 21.25bps to 284.58bps, and Banks tighter by 14.26bps to 288.09bps. Monolines are trading tighter on average by -169.11bps (5.08%) to 2726.95bps.
In IG, FINLs underperformed non-FINLs (2.94% tighter to 5.21% tighter respectively), with the former (IG FINLs) tighter by 14.2bps to 469.9bps, with 17 of the 21 names tighter. The IG CDS market (as per CDX) is 10bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (158.45bps), with the bond ETFs underperforming the IG CDS market by around 0.09bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 8.53bps to 142.53bps (with ITRX FINLs -trading sideways- better by 7.12 to 149.88bps) and is currently trading tight to its week's range at 0%, between 154.85 to 142.53bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0.05%, between 111.28 to 100.89bps. ExHVOL outperformed LoVOL as the differential compressed to -5.82bps from -1.07bps, and remains below the short-term average of -3.07bps. The Main exFINLS to IG ExHVOL differential decompressed to 47.45bps from 44.8bps, and remains above the short-term average of 46.28bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 -9.8bps to 223.05 (3 wider - 44 tighter <> 39 steeper - 11 flatter).
CDX12 IG -8.5bps to 168.5 ($0.36 to $97.05) (FV -8.37bps to 184.64) (10 wider - 108 tighter <> 76 steeper - 48 flatter) - Trend Tighter.
CDX12 HVOL 0bps to 401 (FV -23.17bps to 506.72) (2 wider - 27 tighter <> 23 steeper - 7 flatter) - Trend Tighter.
CDX12 ExHVOL -11.18bps to 95.08 (FV -4.25bps to 100.43) (8 wider - 87 tighter <> 40 steeper - 55 flatter).
CDX11 XO -22.1bps to 390.7 (FV -19.53bps to 457.81) (2 wider - 31 tighter <> 22 steeper - 12 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+1.88 to $77.88 / -76.5bps to 1195.8 (FV -67.52bps to 1107.35) (7 wider - 92 tighter <> 80 steeper - 19 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+1.67 to $76.35 / -137.23bps to 1168.58 - Trend Tighter.
MCDX12 -2bps to 195bps. - Trend Tighter.
CDR Counterparty Risk Index fell 11.1bps (-4.58%) to 231.01bps (1 wider - 14 tighter).
CDR Government Risk Index fell 1.68bps (-2.25%) to 72.83bps.
DXY weakened 0.8% to 84.47.
Oil rose $1.04 to $50.96.
Gold rose $5.82 to $899.2.
VIX fell 1.87pts to 36.08%.
10Y US Treasury yields rose 8.7bps to 3.1%.
S&P500 Futures gained 2.02% to 869.
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