Spreads were tighter in the US as all the major indices improved (with HY and IG making new contract tights once again). Indices typically underperformed single-names with skews widening in general as IG's skew decompressed as the index beat intrinsics, 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. (-307.85bps) pushing IG 1.67bps tighter, and Nordstrom Inc. (+7bps) adding 0.05bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 7.31bps tighter, and Nordstrom Inc. contributing 0.24bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Du Pont E.I. de Nemours & Co (-17.5bps) pushing the index 0.19bps tighter, and Amgen Inc (+6.5bps) adding 0.07bps to ExHVOL.
The price of investment grade credit rose 0.32% to around 99.09% of par, while the price of high yield credits rose 1% to around 85% of par. ABX market prices are higher (improving) by 0.12% of par or in absolute terms, 0.44%. Broadly speaking, CMBX market prices are lower by 0.44% of par or in absolute terms, 0.13%. Volatility (VIX) is down -0.41pts to 29.42%, with 10Y TSY rallying (yield falling) 6.1bps to 3.61% and the 2s10s curve flattened by 6.9bps, as the cost of protection on US Treasuries fell 5.5bps to 40bps. 2Y swap spreads tightened 4.3bps to 43.75bps, as the TED Spread tightened by 3.9bps to 0.52% and Libor-OIS deteriorated 0.5bps to 44.4bps.
The Dollar weakened with DXY falling 0.8% to 78.522, Oil falling $0.13 to $68.45 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 0.84% today (a 0.99% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $6.38 to $981.65 as the S&P rallies (941.8 0.29%) outperforming IG credits (121.25bps 0.32%) while IG, which opened tighter at 127.25bps, underperforms HY credits. IG11 and XOver11 are -6.25bps and -25.5bps respectively while ITRX11 is -7.25bps to 105.25bps.
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 21bps 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.
62% of IG credits are shifting by more than 3bps and 63% of the CDX universe are also shifting significantly (more than the 5 day average of 57%). The number of names wider than the index increased by 1 to 41 as the day's range fell to 7.5bps (one-week average 7.55bps), between low bid at 120.5 and high offer at 128 and higher beta credits (-5.27%) outperformed lower beta credits (-4.35%).
In IG, wideners were outpaced by tighteners by around 6-to-1, with around 25 credits wider (worse breadth than in recent days). By sector, CONS saw 19% names wider, ENRGs 19% names wider, FINLs 5% names wider, INDUs 4% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 105.56bps and the latter at 100.39bps.
Cross Market, we are seeing the HY-XOver spread compressing to 279.44bps from 288.37bps, but remains below the short-term average of 339.96bps, with the HY/XOver ratio rising to 1.42x, below its 5-day mean of 1.47x. The IG-Main spread compressed to 16bps from 16.25bps, but remains below the short-term average of 19.13bps, with the IG/Main ratio rising to 1.15x, below its 5-day mean of 1.16x.
In the US, non-financials underperformed financials as IG ExFINLs are tighter by 4.4bps to 100.4bps, with 85 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 7.18bps to 133.34bps, with Banks (worst) tighter by 3.57bps to 170.44bps, Brokers (best) tighter by 7.25bps to 157.58bps, and Finance names tighter by 29.23bps to 607.79bps. Monolines are trading tighter on average by -184.02bps (8.15%) to 2232.85bps.
In IG, FINLs outperformed non-FINLs (7.72% tighter to 4.24% tighter respectively), with the former (IG FINLs) tighter by 23bps to 275.2bps, with 19 of the 21 names tighter. The IG CDS market (as per CDX) is 11.8bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (109.44bps), with the bond ETFs underperforming the IG CDS market by around 5.99bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 7.32bps to 105.56bps (with ITRX FINLs -trending tighter- better by 7 to 104bps) and is currently trading tight to its week's range at 0%, between 124.92 to 105.56bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0.01%, between 86.91 to 74.38bps. ExHVOL underperformed LoVOL as the differential decompressed to -0.89bps from -3.09bps, but remains below the short-term average of -0.5bps. The Main exFINLS to IG ExHVOL differential compressed to 32.07bps from 35.05bps, but remains below the short-term average of 36.4bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 -10.08bps to 145.99 (7 wider - 42 tighter <> 33 steeper - 16 flatter).
CDX12 IG -7.5bps to 121.25 ($0.32 to $99.09) (FV -7.44bps to 128.59) (15 wider - 104 tighter <> 80 steeper - 41 flatter) - Trend Tighter.
CDX12 HVOL -17.5bps to 272.5 (FV -21bps to 309.99) (3 wider - 25 tighter <> 22 steeper - 6 flatter) - Trend Tighter.
CDX12 ExHVOL -4.34bps to 73.49 (FV -3.45bps to 75.31) (12 wider - 83 tighter <> 37 steeper - 58 flatter).
CDX11 XO 0bps to 316.1 (FV -11.7bps to 381.49) (5 wider - 24 tighter <> 23 steeper - 8 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+1 to $85 / -34.4bps to 940.9 (FV -39.24bps to 907.36) (10 wider - 76 tighter <> 68 steeper - 17 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.62 to $84.5 / -29.37bps to 761.84 - Trend Tighter.
MCDX12 -5bps to 170bps. - Trend Tighter.
CDR Counterparty Risk Index fell 7.18bps (-5.11%) to 133.34bps (2 wider - 13 tighter).
CDR Government Risk Index fell 5.04bps (-8.03%) to 57.68bps..
DXY weakened 0.8% to 78.52.
Oil fell $0.13 to $68.45.
Gold rose $6.38 to $981.65.
VIX fell 0.41pts to 29.42%.
10Y US Treasury yields fell 6.1bps to 3.61%.
S&P500 Futures gained 0.29% to 941.8.
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