Wednesday, April 8, 2009

Daily Credit Market Summary: April 8 - Big Bang

Spreads were mixed in the US today with IG worse, HVOL improving (thanks to insurers), ExHVOL weaker, XO wider, and HY selling off. Indices typically underperformed single-names with skews mostly narrower (post Big Bang - index arbs back in play as skews saw their biggest single-day compression in series 12) as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

The names having the largest impact on IG are Hartford Financial Services Group (-279.43bps) pushing IG 2.01bps tighter, and Ryder System Inc. (+15.5bps) adding 0.12bps to IG. HVOL is more sensitive with Hartford Financial Services Group pushing it 9.47bps tighter, and Ryder System Inc. contributing 0.56bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Allstate Corp (-27.5bps) pushing the index 0.27bps tighter, and National Rural Utilities Cooperative Finance Corporation (+10bps) adding 0.1bps to ExHVOL.

The price of investment grade credit fell 0.02% to around 96.14% of par, while the price of high yield credits fell 0.28% to around 73.63% of par. ABX market prices are higher (improving) by 0.04% of par or in absolute terms, 0.5%. Broadly speaking, CMBX market prices are lower by 0.02% of par or in absolute terms, 0.06%. Volatility (VIX) is down -1.54pts to 38.84%, with 10Y TSY rallying (yield falling) 5bps to 2.85% and the 2s10s curve flattened by 6.6bps, as the cost of protection on US Treasuries rose 2bps to 52bps. 2Y swap spreads tightened 2.5bps to 57.5bps, as the TED Spread tightened by -0.6bps to 0.95% and Libor-OIS improved 1.1bps to 93.3bps (so corporate systemic risk fell as sovereign risk rose).

The Dollar weakened with DXY falling 0.15% to 85.158, Oil rising $1.29 to $50.44 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 2.22% today (a 2.47% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $3.51 to $884.75 as the S&P rallies (822.5 1.04%) outperforming IG credits (189.5bps -0.02%) while IG, which opened tighter at 187bps, outperforms HY credits. IG11 and XOver11 are -2bps and -12.5bps respectively while ITRX11 is -2.38bps to 162bps.

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 -22.5bps 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.

63% of IG credits are shifting by more than 3bps and 65% of the CDX universe are also shifting significantly (more than the 5 day average of 58%). The number of names wider than the index stayed at 49 as the day's range fell to 7bps (one-week average 9.1bps), between low bid at 185 and high offer at 192 and higher beta credits (-4.11%) outperformed lower beta credits (-2.89%).

In IG, wideners were outpaced tighteners by around 6-to-1, with only 7 credits wider. By sector, CONS saw 5% names wider, ENRGs 6% names wider, FINLs 0% names wider, INDUs 7% names wider, and TMTs 9% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 162bps and the latter at 180.12bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 448.93bps from 424.03bps, but remains below the short-term average of 470.21bps, with the HY/XOver ratio rising to 1.49x, below its 5-day mean of 1.51x. The IG-Main spread decompressed to 27.5bps from 24.62bps, and remains above the short-term average of 25.5bps, with the IG/Main ratio rising to 1.17x, above its 5-day mean of 1.15x.

In the US, non-financials underperformed financials as IG11 ExFINLs are tighter by 5.3bps to 180.1bps, with 94 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 10.74bps to 239.03bps, with Finance names (worst) tighter by 75.4bps to 1005.12bps, Brokers (best) tighter by 25.25bps to 293.08bps, and Banks tighter by 18.64bps to 323.57bps. Monolines are trading tighter on average by -138.59bps (5.18%) to 2212.69bps.

In IG12, FINLs outperformed non-FINLs (7.47% tighter to 2.88% tighter respectively), with the former (IG11 FINLs) tighter by 40.9bps to 506.4bps, with 20 of the 21 names tighter. The IG CDS market (as per CDX) is -9.6bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (199.11bps), with the bond ETFs outperforming the IG CDS market by around 2.9bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 2.73bps to 162bps (with ITRX FINLs -trending tighter- better by 1 to 162bps) and is currently trading tight to its week's range at 3.23%, between 177 to 161.5bps, and is trending tighter. Main LoVOL (trend wider) is currently trading in the middle of the week's range at 64.32%, between 113.29 to 103.11bps. ExHVOL underperformed LoVOL as the differential decompressed to -1.79bps from -6.13bps, but remains below the short-term average of -0.16bps. The Main exFINLS to IG ExHVOL differential compressed to 54.13bps from 61.31bps, and remains below the short-term average of 58.2bps.

commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -10.76bps to 271.56 (4 wider - 45 tighter <> 34 steeper - 15 flatter).

CDX12 IG +1bps to 190 ($-0.04 to $96.12) (FV -10.64bps to 230.56) (7 wider - 114 tighter <> 72 steeper - 53 flatter) - Trend Tighter.

CDX12 HVOL -12bps to 448 (FV -35.66bps to 614.14) (2 wider - 26 tighter <> 14 steeper - 16 flatter) - No Trend.

CDX12 ExHVOL +5.11bps to 108.53 (FV -3.91bps to 127.84) (5 wider - 90 tighter <> 36 steeper - 59 flatter).

CDX11 XO +9.9bps to 554.1 (FV -11.47bps to 555.33) (5 wider - 23 tighter <> 13 steeper - 20 flatter) - No Trend.

CDX12 HY (30% recovery) Px $-0.16 to $73.75 / +7.1bps to 1366.1 (FV -13.39bps to 1277.83) (25 wider - 57 tighter <> 19 steeper - 75 flatter) - Trend Tighter.

LCDX10 (55% recovery) Px $+0.38 to $74.88 / -29.37bps to 1460.31 - Trend Tighter.

MCDX11 0bps to 220bps. - Trend Tighter.

CDR Counterparty Risk Index fell 10.74bps (-4.3%) to 239.03bps (7 wider - 8 tighter).

DXY weakened 0.15% to 85.16.

Oil rose $1.29 to $50.44.

Gold rose $3.51 to $884.75.

VIX fell 1.54pts to 38.84%.

10Y US Treasury yields fell 4.6bps to 2.85%.

S&P500 Futures gained 1.04% to 822.5. Sphere: Related Content
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TPC said...

We're starting to see the wides really blow out again in a lot of credit indicators again.

It's amazing how resilient (or stupid) the equity traders are in light of this.

Do you agree Tyler?

qadi said...

I'm surprised HIG closed so much. I recall the TARP closing bank spreads for about 3-4 weeks last winter, then they blew up again.

I don't think it'll take that long given the free-fall of the insurers assets. Could that have been a residual effect of capital arb or something?

Anonymous said...

"Oil rising $1.29 to $50.44 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 2.22% today (a 2.47% rise in the relative (dollar adjusted) value of a barrel of oil)"

I like this idea; but value of gold is still priced in dollars.