Spreads were mixed in the US with IG tighter, HVOL wider (seemed like significant index arb at play), ExHVOL better, XO stronger, and HY selling off (as we felt modest HY-IG decompression pressure). 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's skew widened as it underperformed.
The names having the largest impact on IG are American International Group, Inc. (-288.68bps) pushing IG 1.11bps tighter, and Deere & Co. (+5bps) adding 0.04bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 5.05bps tighter, and Metlife, Inc. contributing 0.01bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Boeing Capital Corp (-12bps) pushing the index 0.12bps tighter, and Deere & Co. (+5bps) adding 0.05bps to ExHVOL.
The price of investment grade credit rose 0.03% to around 97.58% of par, while the price of high yield credits fell 0.36% to around 79.52% of par. ABX market prices are higher (improving) by 0.41% of par or in absolute terms, 1.16%. Volatility (VIX) is down 1.17pts to 34.42%, with 10Y TSY selling off (yield rising) 1bps to 3.16% and the 2s10s curve flattened by 1.4bps, as the cost of protection on US Treasuries fell 2bps to 36bps. 2Y swap spreads tightened 5.8bps to 52.25bps, as the TED Spread tightened by 2.6bps to 0.8% and Libor-OIS improved 1.1bps to 78.4bps.
The Dollar strengthened with DXY rising 0.32% to 84.242, Oil falling $0.63 to $53.84 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 0.68% today (a 0.84% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $4.32 to $897.78 as the S&P is down (897 -0.64%) underperforming IG credits (156.25bps 0.04%) while IG, which opened wider at 158bps, outperforms HY credits. IG11 and XOver11 are -2.75bps and -13.3bps respectively while ITRX11 is -5.6bps to 136bps.
The majority of credit curves steepened (we note that the active bond-buyers in the 7-8Y range covering steepeners continues) 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 -24.9bps 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 decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.
46% of IG credits are shifting by more than 3bps and 52% of the CDX universe are also shifting significantly (less than the 5 day average of 63%). The number of names wider than the index decreased by 1 to 42 as the day's range fell (narrow range day) to 6.75bps (one-week average 9.65bps), between low bid at 155 and high offer at 161.75 and higher beta credits (-2.74%) outperformed lower beta credits (-1.89%).
In IG, wideners were outpaced by tighteners by around 4-to-1, with 22 credits wider. By sector, CONS saw 22% names wider, ENRGs 38% names wider, FINLs 10% names wider, INDUs 4% names wider, and TMTs 22% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 134.5bps and the latter at 124.56bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 337.94bps from 310.91bps, but remains below the short-term average of 352.37bps, with the HY/XOver ratio rising to 1.43x, below its 5-day mean of 1.43x. The IG-Main spread decompressed to 20.25bps from 15.4bps, but remains below the short-term average of 21.68bps, with the IG/Main ratio rising to 1.15x, below its 5-day mean of 1.15x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 3bps to 124.6bps, with 70 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 4.08bps to 223.43bps, with Brokers (worst) tighter by 3.75bps to 285.2bps, Finance names (best) tighter by 21.25bps to 887.28bps, and Banks tighter by 6.61bps to 278.83bps. Monolines are trading tighter on average by -86.19bps (2.7%) to 2724.85bps.
In IG, FINLs outperformed non-FINLs (3.81% tighter to 2.34% tighter respectively), with the former (IG FINLs) tighter by 16.8bps to 424.1bps, with 16 of the 21 names tighter. The IG CDS market (as per CDX) is 5.5bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (150.78bps), with the bond ETFs outperforming the IG CDS market by around 3.97bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 6.8bps to 134.5bps (with ITRX FINLs -trending tighter- better by 0.8 to 142bps) and is currently trading tight to its week's range at 0%, between 151.06 to 134.5bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading tight to its week's range at 0.01%, between 107.33 to 95.42bps. ExHVOL underperformed LoVOL as the differential decompressed to -5.72bps from -8.03bps, but remains below the short-term average of -4.13bps. The Main exFINLS to IG ExHVOL differential compressed to 44.8bps from 48.41bps, and remains below the short-term average of 45.14bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 -3.57bps to 214.28 (11 wider - 36 tighter <> 30 steeper - 18 flatter).
CDX12 IG -0.75bps to 156.25 ($0.03 to $97.58) (FV -5.13bps to 171) (22 wider - 86 tighter <> 65 steeper - 59 flatter) - Trend Tighter.
CDX12 HVOL +7bps to 367 (FV -16.93bps to 449.1) (1 wider - 28 tighter <> 17 steeper - 13 flatter) - Trend Tighter.
CDX12 ExHVOL -3.2bps to 89.7 (FV -1.79bps to 95.13) (21 wider - 74 tighter <> 47 steeper - 48 flatter).
CDX11 XO -10.6bps to 357.3 (FV -12.57bps to 424.6) (6 wider - 27 tighter <> 22 steeper - 12 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $-0.36 to $79.52 / +13.7bps to 1132.4 (FV -33.19bps to 1030.26) (24 wider - 72 tighter <> 62 steeper - 34 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $-0.23 to $78.15 / +15.26bps to 1067.4 - Trend Tighter.
MCDX12 -5bps to 190bps. - No Trend.
CDR Counterparty Risk Index fell 4.08bps (-1.79%) to 223.43bps (3 wider - 12 tighter).
CDR Government Risk Index fell 2.47bps (-3.67%) to 64.84bps.
DXY strengthened 0.32% to 84.24.
Oil fell $0.63 to $53.84.
Gold fell $4.32 to $897.78.
VIX fell 1.17pts to 34.42%.
10Y US Treasury yields rose 1bps to 3.16%.
S&P500 Futures lost 0.64% to 897
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