Thursday, April 2, 2009

Daily Credit Market Summary: April 2: Now What?

Spreads were tighter in the US today as all the indices improved, although IG and HVOL ended at the day’s wides. Indices typically underperformed single-names with skews mostly narrower 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 outperformed but narrowed the skew.

The names having the largest impact on IG are International Lease Finance Corp. (-96.8bps) pushing IG 0.53bps tighter, and American International Group, Inc. (+112.89bps) adding 0.52bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 2.53bps tighter, and American International Group, Inc. contributing 2.47bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Staples Inc. (-26.5bps) pushing the index 0.27bps tighter, and Comcast Corp. (+3bps) adding 0.03bps to ExHVOL.

The price of investment grade credit rose 0.16% to around 95.76% of par, while the price of high yield credits rose 1.18% to around 70.31% of par. ABX market prices are higher (improving) by 0.43% of par or in absolute terms, 1.69%. Broadly speaking, CMBX market prices are higher (improving) by 0.13% of par or in absolute terms, 0.38%. Volatility (VIX) is down 0.24pts to 42.21%, with 10Y TSY selling off (yield rising) 10.1bps to 2.76% and the 2s10s curve steepened by 3bps, as the cost of protection on US Treasuries rose 3bps to 65bps. 2Y swap spreads tightened 0.3bps to 57bps, as the TED Spread tightened by 2.5bps to 0.95% and Libor-OIS improved 0.6bps to 94.8bps.

The Dollar weakened with DXY falling 1.24% to 84.446, Oil rising $4.03 to $52.42 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 9.35% today (a 7.09% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $8.7 to $918.7 as the S&P rallies (836.6 3.39%) outperforming IG credits (198bps 0.17%) while IG, which opened tighter at 196bps, underperforms HY credits. IG11 and XOver11 are -5.5bps and -37bps respectively while ITRX11 is -10.5bps to 168bps.

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 fell -3.8bps 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.

68% of IG credits are shifting by more than 3bps and 70% of the CDX universe are also shifting significantly (more than the 5 day average of 63%). The number of names wider than the index decreased by 1 to 48 as the day's range fell to 8bps (one-week average 8.6bps), between low bid at 192 and high offer at 200 and higher beta credits (-3.02%) underperformed lower beta credits (-3.54%).

In IG, wideners were outpaced by tighteners by around 8-to-1, with only 7 credits wider. By sector, CONS saw 0% names wider, ENRGs 0% names wider, FINLs 10% names wider, INDUs 7% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 167.75bps and the latter at 186.18bps.

Cross Market, we are seeing the HY-XOver spread compressing to 682.39bps from 708.24bps, but remains below the short-term average of 711.63bps, with the HY/XOver ratio rising to 1.74x, below its 5-day mean of 1.76x. The IG-Main spread decompressed to 30bps from 23.25bps, but remains above the short-term average of 22.44bps, with the IG/Main ratio rising to 1.18x, above its 5-day mean of 1.13x.

In the US, non-financials outperformed financials as IG11 ExFINLs are tighter by 6.8bps to 186.2bps, with 91 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 15.02bps to 257.3bps, with Finance names (worst) tighter by 44.13bps to 1126.43bps, Banks (best) tighter by 22.04bps to 344.79bps, and Brokers tighter by 20.63bps to 323.95bps. Monolines are trading tighter on average by 159.82bps (4.85%) to 2655.17bps. (Note that most financials are still wider on the week).

In IG12, FINLs underperformed non-FINLs (2.52% tighter to 3.51% tighter respectively), with the former (IG11 FINLs) tighter by 14bps to 542.5bps, with 18 of the 21 names tighter. The IG CDS market (as per CDX) is 12.9bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (210.95bps), with the bond ETFs outperforming the IG CDS market by around 3.16bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 9.25bps to 167.75bps (with ITRX FINLs -trending wider- better by 15.5 to 169bps) and is currently trading in the middle of the week's range at 41.27%, between 177 to 161.25bps, and is trending wider. Main LoVOL (sideways trading) is currently trading tight to its week's range at 5.96%, between 113.29 to 102.46bps. ExHVOL underperformed LoVOL as the differential decompressed to 10.26bps from 2.8bps, but remains above the short-term average of 0.81bps. The Main exFINLS to IG ExHVOL differential compressed to 54.38bps from 60.91bps, but remains below the short-term average of 61.75bps.

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -12.76bps to 282.92 (3 wider - 46 tighter <> 35 steeper - 15 flatter).

CDX12 IG -3.75bps to 198 ($0.16 to $95.76) (FV -7.89bps to 240.52) (7 wider - 110 tighter <> 72 steeper - 53 flatter) - Trend Wider.

CDX12 HVOL -7bps to 466 (FV -18.92bps to 646.45) (4 wider - 24 tighter <> 18 steeper - 12 flatter) - Trend Wider.

CDX12 ExHVOL -2.72bps to 113.37 (FV -4.96bps to 132.23) (3 wider - 92 tighter <> 41 steeper - 54 flatter).

CDX11 XO -13.5bps to 551.8 (FV -24.85bps to 579.58) (2 wider - 29 tighter <> 25 steeper - 9 flatter) - Trend Wider.

CDX11 HY (30% recovery) Px $+1.18 to $70.31 / -62.8bps to 1604.9 (FV -51.9bps to 1292) (15 wider - 79 tighter <> 69 steeper - 29 flatter) - Trend Tighter.

LCDX10 (55% recovery) Px $+1.1 to $74.1 / -91.27bps to 1516.2 - Trend Wider.

MCDX11 -4.5bps to 225bps. - No Trend.

CDR Counterparty Risk Index fell 15.02bps (-5.51%) to 257.3bps (0 wider - 15 tighter).

DXY weakened 1.24% to 84.45.

Oil rose $4.13 to $52.52.

Gold fell $8.7 to $918.7.

VIX fell 0.24pts to 42.21%.

10Y US Treasury yields rose 10.5bps to 2.76%.

S&P500 Futures gained 3.37% to 836.5.

Commentary and data compliments of Sphere: Related Content
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Anonymous said...

Nice report! Thanks for all the non-aggregated data. A free username/password would be nice.

We are in an economic depression, at least according to your creditresearch..

Anonymous said...

The dollar oil trade is such nonsense. The dollar fell so that means people that use the dollar have to use more of them to buy oil. Why oil goes up because of that continues to defy market fundamentala and, less importantly, logic.

qadi said...

If a dollar buys half the wealth today than it did yday, then why shouldn't I get 2 today for something worth 1 yday?

Pretty straightforward to me...

Anonymous said...


Thanks for all your hard work. Can you link to a post, or other primers, for those of us arm-chair amateur credit newbies who want to follow along with the conversation on these daily credit reports.

Rapidly learning as fast as I can.

Tyler Durden said...

For the cliff notes on the context of the daily summary, check out the April 1st summary as it points out what everything means in plain english. if you want to dig deeper, here is the best site for all primary research. recommended reading for all:

Anonymous said...

Tyler, re: post at 4/3 12:54am,

That's what we call in the business a "gold mine". Thanks for the link. I'll be spending many hours there :-)