Spreads were mixed in the US today with IG worse, HVOL wider, ExHVOL better, XO stronger, and HY rallying, although moves were generally minimal with a late day rally in IG the only bright spot. Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL outperformed pushing the skew wider, XO underperformed but compressed the skew, and HY outperformed but narrowed the skew.
The names having the largest impact on IG are Textron Financial Corp (-78.58bps) pushing IG 0.54bps tighter, and National Rural Utilities Cooperative Finance Corporation (+55bps) adding 0.42bps to IG. HVOL is more sensitive with Textron Financial Corp pushing it 2.54bps tighter, and Alcoa Inc. contributing 0.84bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Avnet Inc. (-12.5bps) pushing the index 0.12bps tighter, and National Rural Utilities Cooperative Finance Corporation (+55bps) adding 0.53bps to ExHVOL.
The price of investment grade credit fell 0.04% to around 96.14% of par, while the price of high yield credits rose 0.125% to around 73.88% of par. ABX market prices are lower by 0.15% of par or in absolute terms, 0.43%. Broadly speaking, CMBX market prices are lower by 0.28% of par or in absolute terms, 0.88%. Volatility (VIX) is down -0.47pts to 40.81%, with 10Y TSY rallying (yield falling) 2.8bps to 2.9% and the 2s10s curve steepened by 0.4bps, as the cost of protection on US Treasuries rose 3bps to 50bps. 2Y swap spreads tightened 0.5bps to 59.75bps, as the TED Spread tightened by -1.3bps to 0.96% and Libor-OIS deteriorated 0.5bps to 94.3bps.
The Dollar strengthened with DXY rising 0.81% to 85.259, Oil falling $2.08 to $48.97 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 5.72% today (a 3.26% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $15.19 to $884.09 as the S&P is down (816 -1.73%) underperforming IG credits (189.5bps -0.04%) while IG, which opened wider at 192bps, underperforms HY credits. IG11 and XOver11 are +5bps and +20.5bps respectively while ITRX11 is +3bps to 164.25bps.
The majority of credit curves steepened 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 -2.9bps 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 increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.
43% of IG credits are shifting by more than 3bps and 51% of the CDX universe are also shifting significantly (less than the 5 day average of 59%). The number of names wider than the index increased by 1 to 49 as the day's range fell to 8bps (one-week average 9.5bps), between low bid at 187 and high offer at 195 and higher beta credits (-0.05%) outperformed lower beta credits (0.52%).
In IG, wideners outpaced tighteners by around 3-to-2, with 56 credits wider. By sector, CONS saw 43% names wider, ENRGs 50% names wider, FINLs 33% names wider, INDUs 61% names wider, and TMTs 35% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 164.56bps and the latter at 184.8bps.
Cross Market, we are seeing the HY-XOver spread compressing to 425.94bps from 451.97bps, but remains below the short-term average of 489.09bps, with the HY/XOver ratio falling to 1.46x, below its 5-day mean of 1.52x. The IG-Main spread compressed to 25.25bps from 27.25bps, but remains above the short-term average of 25.11bps, with the IG/Main ratio falling to 1.15x, above its 5-day mean of 1.15x.
In the US, non-financials underperformed financials as IG12 ExFINLs are wider by 0.9bps to 184.8bps, with 33 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 0.62bps to 248.45bps, with Banks (worst) tighter by 3.11bps to 343.68bps, Brokers (best) tighter by 5bps to 313.83bps, and Finance names tighter by 38.39bps to 1080.86bps. Monolines are trading tighter on average by -95.84bps (2.81%) to 2349.35bps.
In IG12, FINLs outperformed non-FINLs (0.71% tighter to 0.5% wider respectively), with the former (IG11 FINLs) tighter by 3.8bps to 538.6bps, with 12 of the 21 names tighter. The IG CDS market (as per CDX) is -12bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (201.5bps), with the bond ETFs underperforming the IG CDS market by around 1.05bps.
In Europe, ITRX Main ex-FINLs (underperforming FINLs) widened 3.06bps to 164.56bps (with ITRX FINLs -trending tighter- weaker by 2.75 to 163bps) and is currently trading tight to its week's range at 19.74%, between 177 to 161.5bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading in the middle of the week's range at 61.61%, between 113.29 to 103.11bps. ExHVOL outperformed LoVOL as the differential compressed to -5.3bps from -1.64bps, but remains below the short-term average of 1.41bps. The Main exFINLS to IG ExHVOL differential decompressed to 60.48bps from 57bps, and remains above the short-term average of 58.53bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 +1.25bps to 281.51 (23 wider - 20 tighter <> 25 steeper - 25 flatter).
CDX12 IG +1bps to 189.5 ($-0.04 to $96.14) (FV +0.73bps to 239.26) (60 wider - 40 tighter <> 67 steeper - 55 flatter) - Trend Tighter.
CDX12 HVOL +0.5bps to 455 (FV -0.12bps to 645.34) (17 wider - 10 tighter <> 15 steeper - 15 flatter) - Trend Tighter.
CDX12 ExHVOL +1.16bps to 105.66 (FV +0.95bps to 131.57) (43 wider - 52 tighter <> 43 steeper - 52 flatter).
CDX11 XO -0.4bps to 544.2 (FV -4.62bps to 570.39) (19 wider - 8 tighter <> 20 steeper - 15 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.13 to $73.88 / -5.8bps to 1360.7 (FV +24.55bps to 1289.88) (53 wider - 33 tighter <> 51 steeper - 47 flatter) - Trend Tighter.
LCDX10 (55% recovery) Px $+0.25 to $74.75 / -19.36bps to 1470.8 - Trend Tighter.
MCDX11 0bps to 220bps. - Trend Tighter.
CDR Counterparty Risk Index fell 0.25bps (-0.1%) to 248.82bps (9 wider - 6 tighter).
DXY strengthened 0.81% to 85.26.
Oil fell $2.08 to $48.97.
Gold rose $15.19 to $884.09.
VIX fell 0.47pts to 40.81%.
10Y US Treasury yields fell 2.4bps to 2.9%.
S&P500 Futures lost 1.73% to 816.
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