Wednesday, May 20, 2009

Daily Credit Market Summary: May 20 - Anything But Unch.

Spreads were mixed in the US with IG worse, HVOL improving, ExHVOL weaker, XO wider, and HY selling off (but while moves were marginal close-to-close, the sentiment was wider all day off a gap tight opening). Indices typically underperformed single-names (as single-names caught up with the rally close last night) 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's skew widened as it underperformed.

The names having the largest impact on IG are Boston Properties L.P. (-40bps) pushing IG 0.3bps tighter, and Viacom Inc. (+5bps) adding 0.04bps to IG. HVOL is more sensitive with Boston Properties L.P. pushing it 1.34bps tighter, and Whirlpool Corp. contributing 0.1bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Constellation Energy Group Inc. (-20bps) pushing the index 0.2bps tighter, and Viacom Inc. (+5bps) adding 0.05bps to ExHVOL.

The price of investment grade credit fell 0.01% to around 98.09% of par, while the price of high yield credits fell 0.155% to around 79.88% of par. ABX market prices are higher (improving) by 0.11% of par or in absolute terms, 0.47%. Broadly speaking, CMBX market prices are higher (improving) by 0.19% of par or in absolute terms, 0.61%. Volatility (VIX) is up 0.23pts to 29.03%, with 10Y TSY rallying (yield falling) 5.9bps to 3.19% and the 2s10s curve flattened by 1bps, as the cost of protection on US Treasuries fell 1bps to 34bps. 2Y swap spreads tightened 1bps to 35.5bps, as the TED Spread tightened by 2.8bps to 0.55% and Libor-OIS improved 3bps to 51.7bps.

The Dollar weakened (again) with DXY falling 1.17% to 81.139, Oil rising $2.14 to $61.79 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 2.12% today (a 2.42% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $13.3 to $938.35 as the S&P is down (899.1 -0.82%) underperforming IG credits (144.25bps -0.01%) while IG, which opened tighter at 141.5bps (and saw tights not seen since 05/08 gap tights), outperforms HY credits. IG11 and XOver11 are +0.25bps and -17.25bps respectively while ITRX11 is -6bps to 120.5bps.

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 -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.

61% 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 59%). The number of names wider than the index decreased by 4 to 42 as the day's range fell to 7.5bps (one-week average 8.63bps), between low bid at 137 and high offer at 144.5 and higher beta credits (-4.89%) outperformed lower beta credits (-3.71%).

In IG, tighteners outpaced wideners by around 15-to-1, with 8 credits wider. By sector, CONS saw 5% names wider, ENRGs 6% names wider, FINLs 10% names wider, INDUs 7% names wider, and TMTs 4% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 122.75bps and the latter at 118.12bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 376.86bps from 353.7bps, and remains above the short-term average of 357.53bps, with the HY/XOver ratio rising to 1.51x, above its 5-day mean of 1.46x. The IG-Main spread decompressed to 23.75bps from 17.5bps, and remains above the short-term average of 19.59bps, with the IG/Main ratio rising to 1.2x, above its 5-day mean of 1.15x.

In the US, non-financials underperformed financials as IG ExFINLs are tighter by 5.3bps to 118.1bps, with 89 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 8.61bps to 147.94bps, with Finance names (worst) tighter by 23.65bps to 763.16bps, Brokers (best) tighter by 8.13bps to 190.83bps, and Banks tighter by 6.29bps to 186.76bps. Monolines are trading tighter on average by -112.32bps (4.43%) to 2383.51bps. Notably, FINLs credits outperformed stocks as we hear investors reloading on CSA trades across senior debt and common stock.

In IG, FINLs outperformed non-FINLs (3.99% tighter to 3.3% tighter respectively), with the former (IG FINLs) tighter by 14.8bps to 355.4bps, with 18 of the 21 names tighter. The IG CDS market (as per CDX) is -1bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (145.24bps), with the bond ETFs underperforming the IG CDS market by around 3.54bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 5.88bps to 122.75bps (with ITRX FINLs -trending tighter- better by 6.5 to 111.5bps) and is currently trading tight to its week's range at 0%, between 137.38 to 122.75bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0%, between 93.74 to 82.29bps. ExHVOL underperformed LoVOL as the differential decompressed to 2.04bps from -4.61bps, and remains above the short-term average of -1.87bps. The Main exFINLS to IG ExHVOL differential compressed to 38.42bps from 46.52bps, and remains below the short-term average of 44.24bps.

Commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -7.07bps to 176.93 (3 wider - 43 tighter <> 39 steeper - 7 flatter).

CDX12 IG +0.25bps to 144.25 ($-0.01 to $98.09) (FV -6.8bps to 155.67) (8 wider - 107 tighter <> 89 steeper - 28 flatter) - Trend Tighter.

CDX12 HVOL -6bps to 334 (FV -18.11bps to 391.1) (1 wider - 26 tighter <> 22 steeper - 6 flatter) - Trend Tighter.

CDX12 ExHVOL +2.22bps to 84.33 (FV -3.54bps to 89.2) (7 wider - 88 tighter <> 28 steeper - 67 flatter).

CDX11 XO 0bps to 347.4 (FV -11.45bps to 416.13) (2 wider - 28 tighter <> 27 steeper - 4 flatter) - No Trend.

CDX12 HY (30% recovery) Px $-0.16 to $79.875 / +5.9bps to 1116.6 (FV -31.46bps to 980.31) (5 wider - 75 tighter <> 65 steeper - 18 flatter) - Trend Tighter.

LCDX12 (65% recovery) Px $+0.93 to $80.95 / -58.36bps to 984.62 - Trend Tighter.

MCDX12 -4bps to 166bps. - Trend Tighter.

CDR Counterparty Risk Index fell 8.61bps (-5.5%) to 147.94bps (1 wider - 14 tighter).

CDR Government Risk Index fell 2.29bps (-4.09%) to 53.64bps.

DXY weakened 1.17% to 81.14.

Oil rose $2.14 to $61.79.

Gold rose $13.3 to $938.35.

VIX increased 0.23pts to 29.03%.

10Y US Treasury yields fell 5.6bps to 3.19%.

S&P500 Futures lost 0.82% to 899.1. Sphere: Related Content
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