Thursday, April 9, 2009

Daily Credit Market Summary: April 9 - PPT In Full Force

Spreads were tighter in the US today as all the indices improved. Indices typically underperformed single-names with skews mostly narrower (index arb in HVOL is clear) 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 (-252.61bps) pushing IG 1.89bps tighter, and COX Communications Inc. (+9bps) adding 0.07bps to IG. HVOL is more sensitive with Textron Financial Corp pushing it 8.85bps tighter, and Carnival Corp. contributing 0bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both National Rural Utilities Cooperative Finance Corporation (-50bps) pushing the index 0.49bps tighter, and COX Communications Inc. (+9bps) adding 0.09bps to ExHVOL.

The price of investment grade credit rose 0.31% to around 96.44% of par, while the price of high yield credits rose 0.94% to around 74.63% of par
. ABX market prices are lower by 0.02% of par or in absolute terms, 0.43%. Broadly speaking, CMBX market prices are higher (improving) by 0.08% of par or in absolute terms, 0.23%. Volatility (VIX) is down -1.67pts to 37.32%, with 10Y TSY selling off (yield rising) 6.3bps to 2.92% and the 2s10s curve steepened by 3.9bps, as the cost of protection on US Treasuries fell 3bps to 49bps. 2Y swap spreads tightened 0.3bps to 57bps, as the TED Spread tightened by -0.4bps to 0.96% and Libor-OIS improved 0bps to 93.1bps.

The Dollar strengthened with DXY rising 0.19% to 85.526, Oil rising $2.33 to $51.71 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 4.92% today (a 4.91% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $1.68 to $878.82 as the S&P rallies (845 2.72%) outperforming IG credits (182.25bps 0.32%) while IG, which opened tighter at 189bps, underperforms HY credits. IG11 and XOver11 are -6.63bps and -48bps respectively while ITRX11 is -4.75bps to 157.25bps.

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 11.6bps 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.

54% of IG credits are shifting by more than 3bps and 61% of the CDX universe are also shifting significantly (more than the 5 day average of 57%). The number of names wider than the index stayed at 49 as the day's range rose to 10bps (one-week average 9.5bps), between low bid at 180 and high offer at 190 and higher beta credits (-3.1%) outperformed lower beta credits (-2.46%).

In IG, wideners were outpaced by tighteners by around 7-to-1, with only 11 credits wider. By sector, CONS saw 11% names wider, ENRGs 13% names wider, FINLs 0% names wider, INDUs 4% names wider, and TMTs 17% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 157.31bps and the latter at 174.49bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 454.11bps from 447.31bps, but remains below the short-term average of 458.54bps, with the HY/XOver ratio rising to 1.52x, above its 5-day mean of 1.5x. The IG-Main spread compressed to 25bps from 27.5bps, and remains below the short-term average of 25.79bps, with the IG/Main ratio falling to 1.16x, above its 5-day mean of 1.16x.

In the US
, non-financials underperformed financials as IG11 ExFINLs are tighter by 7bps to 174.5bps, with 83 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 10.24bps to 229.18bps, with Finance names (worst) tighter by 57.43bps to 948.57bps, Banks (best) tighter by 17.1bps to 307.19bps, and Brokers tighter by 13.25bps to 282.08bps. Monolines are trading wider on average by 104.33bps (4.56%) to 2319.57bps.

In IG12, FINLs underperformed non-FINLs (2.91% tighter to 3.84% tighter respectively), with the former (IG11 FINLs) tighter by 14.8bps to 493.1bps, with 20 of the 21 names tighter. The IG CDS market (as per CDX) is -4.7bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (186.92bps), with the bond ETFs outperforming the IG CDS market by around 4.93bps.

In Europe
, ITRX Main ex-FINLs (underperforming FINLs) rallied 4.69bps to 157.31bps (with ITRX FINLs -trending tighter- better by 5 to 157bps) and is currently trading tight to its week's range at 0%, between 167.75 to 157.31bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading in the middle of the week's range at 61.2%, between 109.66 to 103.11bps. ExHVOL outperformed LoVOL as the differential compressed to -7.84bps from -1.79bps, and remains below the short-term average of -1.93bps. The Main exFINLS to IG ExHVOL differential decompressed to 58.03bps from 54.13bps, and remains above the short-term average of 57.73bps.

commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -9.99bps to 262.65 (3 wider - 44 tighter <> 30 steeper - 20 flatter).

CDX12 IG -7.25bps to 182.25 ($0.31 to $96.44) (FV -8.18bps to 223.69) (11 wider - 103 tighter <> 60 steeper - 63 flatter) - No Trend.

CDX12 HVOL -3bps to 445 (FV -24.76bps to 592.18) (0 wider - 28 tighter <> 21 steeper - 9 flatter) - Trend Tighter.

CDX12 ExHVOL -8.59bps to 99.28 (FV -3.68bps to 124.6) (11 wider - 84 tighter <> 46 steeper - 49 flatter).

CDX11 XO -11.2bps to 542.9 (FV -11.55bps to 547.77) (5 wider - 25 tighter <> 20 steeper - 15 flatter) - No Trend.

CDX11 HY (30% recovery) Px $+0.94 to $74.63 / -41.2bps to 1328.6 (FV -29.98bps to 1254.31) (13 wider - 73 tighter <> 70 steeper - 20 flatter) - Trend Tighter.

LCDX10 (55% recovery) Px $+0.6 to $75.55 / -44.82bps to 1411.58 - Trend Tighter.

MCDX11 +1.75bps to 221.75bps. - No Trend.

CDR Counterparty Risk Index fell 10.24bps (-4.28%) to 229.18bps (0 wider - 15 tighter).

DXY strengthened 0.19% to 85.53.

Oil rose $2.33 to $51.71.

Gold fell $1.68 to $878.82.

VIX fell 1.67pts to 37.32%.

10Y US Treasury yields rose 6.3bps to 2.92%.

S&P500 Futures gained 2.72% to 845.

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In Debt We Trust said...

And here I thought only us equity traders believed in the PPT...Good to know that bond guys seem to believe in it too. Be careful - light volume extends throughout Monday when most of Europe is on vacation.

But remember what happened the Monday after Thanksgiving (after the 5 day consecutive rally)?

Yup. Black Monday. Or possibly Tuesday in this case.