Zero Hedge

Spreads were mixed in the US today with IG worse, HVOL improving, ExHVOL weaker, XO wider, and HY rallying. Indices typically underperformed single-names with skews widening in general as IG underperformed but narrowed the skew, HVOL outperformed but widened 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 XL Capital Limited (-26.71bps) pushing IG 0.19bps tighter, and American International Group, Inc. (+155.69bps) adding 0.72bps to IG. HVOL is more sensitive with XL Capital Limited pushing it 0.93bps tighter, and American International Group, Inc. contributing 3.42bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Ingersoll-Rand Company (-17.5bps) pushing the index 0.19bps tighter, and National Rural Utilities Cooperative Finance Corporation (+44.87bps) adding 0.44bps to ExHVOL.

The price of investment grade credit fell 0.09% to around 96.16% of par, while the price of high yield credits rose 0.1925% to around 71.63% of par. ABX market prices are lower by 0.09% of par or in absolute terms, 0.29%. Broadly speaking, CMBX market prices are lower by 0.04% of par or in absolute terms, 0.13%. Volatility (VIX) is up 1.23pts to 40.93%, with 10Y TSY selling off (yield rising) 3.9bps to 2.93% and the 2s10s curve steepened by 4.7bps, as the cost of protection on US Treasuries fell 3bps to 47bps. 2Y swap spreads widened 2.8bps to 60.25bps, as the TED Spread widened by 1.1bps to 0.97% and Libor-OIS deteriorated 0.1bps to 94.4bps.

The Dollar strengthened with DXY rising 0.48% to 84.571, Oil falling $1.16 to $51.35 (underperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.4% today (a 1.73% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $23.25 to $869.9 as the S&P is down (832.4 -0.98%) underperforming IG credits (189bps -0.09%) while IG, which opened tighter at 183bps, underperforms HY credits. IG11 and XOver11 are +4.88bps and -3.5bps respectively while ITRX11 is -3.75bps to 162.5bps.

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 +11.2bps 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.

43% of IG credits are shifting by more than 3bps and 50% of the CDX universe are also shifting significantly (less than the 5 day average of 60%). The number of names wider than the index decreased by 1 to 48 as the day's range fell to 10.5bps (one-week average 9.9bps), between low bid at 182 and high offer at 192.5 and higher beta credits (0.11%) underperformed lower beta credits (-0.77%). In IG, wideners outpaced tighteners by around 1-to-1, with 39 credits wider. By sector, CONS saw 16% names wider, ENRGs 19% names wider, FINLs 38% names wider, INDUs 46% names wider, and TMTs 39% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 163.06bps and the latter at 183.71bps.

Cross Market, we are seeing the HY-XOver spread compressing to 627.54bps from 633.87bps, but remains below the short-term average of 697.53bps, with the HY/XOver ratio falling to 1.69x, below its 5-day mean of 1.75x. The IG-Main spread decompressed to 26.5bps from 20.38bps, and remains above the short-term average of 24.17bps, with the IG/Main ratio rising to 1.16x, above its 5-day mean of 1.14x.

In the US, non-financials outperformed financials as IG11 ExFINLs are tighter by 0.6bps to 183.7bps, with 58 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 4.7bps to 248.5bps, with Banks (worst) wider by 2bps to 345.93bps, Brokers (best) tighter by 3.19bps to 318.26bps, and Finance names wider by 1.04bps to 1110.12bps. Monolines are trading tighter on average by -137.27bps (4.09%) to 2446.36bps.

In IG12, FINLs underperformed non-FINLs (1.39% wider to 0.35% tighter respectively), with the former (IG11 FINLs) wider by 7.4bps to 542.5bps, with 9 of the 21 names tighter. The IG CDS market (as per CDX) is 10.5bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (199.45bps), with the bond ETFs outperforming the IG CDS market by around 3.16bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 3bps to 163.06bps (with ITRX FINLs -trending tighter- better by 6.75 to 160.25bps) and is currently trading tight to its week's range at 0%, between 177 to 163.06bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading in the middle of the week's range at 45.97%, between 113.29 to 103.11bps. ExHVOL underperformed LoVOL as the differential decompressed to -3.74bps from -8.71bps, but remains below the short-term average of 1.8bps. The Main exFINLS to IG ExHVOL differential compressed to 59.01bps from 65.76bps, and remains below the short-term average of 59.59bps.

commentary compliments of http://www.creditresearch.com/

Index/Intrinsics Changes:

CDR LQD 50 NAIG091 -2.23bps to 279.48 (14 wider - 31 tighter <> 28 steeper - 22 flatter).

CDX12 IG +2.37bps to 189 ($-0.09 to $96.16) (FV +0.07bps to 238.11) (35 wider - 68 tighter <> 69 steeper - 56 flatter) - Trend Tighter.

CDX12 HVOL -2bps to 458 (FV +4.15bps to 645.28) (14 wider - 11 tighter <> 13 steeper - 17 flatter) - Trend Tighter.

CDX12 ExHVOL +3.75bps to 104.05 (FV -1.01bps to 130.22) (21 wider - 74 tighter <> 38 steeper - 57 flatter).

CDX11 XO 0bps to 544.6 (FV +6.86bps to 569.21) (19 wider - 13 tighter <> 11 steeper - 23 flatter) - Trend Tighter.

CDX11 HY (30% recovery) Px $+0.19 to $71.63 / -9.8bps to 1542.3 (FV -15.45bps to 1278.35) (53 wider - 37 tighter <> 33 steeper - 66 flatter) - Trend Tighter.

LCDX10 (55% recovery) Px $-0.1 to $74.65 / +7.72bps to 1479.39 - Trend Tighter.

MCDX11 -2bps to 220bps. - Trend Tighter.

CDR Counterparty Risk Index fell 4.52bps (-1.79%) to 248.69bps (2 wider - 13 tighter).

DXY strengthened 0.48% to 84.57.

Oil fell $1.18 to $51.33.

Gold fell $23.25 to $869.9.

VIX increased 1.23pts to 40.93%.

10Y US Treasury yields rose 3.9bps to 2.93%.

S&P500 Futures lost 0.98% to 832.4. Sphere: Related Content

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