Wednesday, June 17, 2009

Daily Credit Summary: June 17 - Much Ado About NufFin

Spreads were broadly wider in the US as all the indices deteriorated (with HY once again underperforming IG but the latter ending well off its wides of the day). Indices generally outperformed intrinsics (as single-names played catch up with last night's weak close) with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL outperformed pushing the skew wider, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew (in the face of a lower VIX - maybe OPEX week related).

The names having the largest impact on IG are International Lease Finance Corp. (-4.39bps) pushing IG 0.03bps tighter, and CIT Group Inc (+105.29bps) adding 0.58bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 0.13bps tighter, and CIT Group Inc contributing 2.57bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Allstate Corp (-2bps) pushing the index 0.02bps tighter, and Southwest Airlines Co. (+18.75bps) adding 0.19bps to ExHVOL.

The price of investment grade credit fell 0.13% to around 98.28% of par, while the price of high yield credits fell 1.005% to around 82.88% of par. ABX market prices are lower by 0.13% of par or in absolute terms, 0.59%. Broadly speaking, CMBX market prices are lower by 0.01% of par or in absolute terms, 0%. Volatility (VIX) is down -1.19pts to 31.49%, with 10Y TSY selling off (yield rising) 1.2bps to 3.67% and the 2s10s curve steepened by 4.4bps, as the cost of protection on US Treasuries fell 1bps to 45.5bps (outperforming the other SOV majors on AAA affirmation). 2Y swap spreads widened 1.9bps to 43.69bps, as the TED Spread tightened by 0.7bps to 0.44% and Libor-OIS improved 1.1bps to 38.4bps.

The Dollar weakened with DXY falling 0.6% to 80.225, Oil rising $0.41 to $70.88 (underperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.04% today (a 0.02% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $5.05 to $939.85 as the S&P is down (910.3 -0.19%) underperforming IG credits (140.75bps -0.13%) while IG, which opened wider at 138.5bps, outperforms HY credits. IG11 and XOver11 are +3.25bps and +16.5bps respectively while ITRX11 is +5.37bps to 122.25bps.

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 rose 8.5bps 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.

61% of IG credits are shifting by more than 3bps and 68% of the CDX universe are also shifting significantly (more than the 5 day average of 55%). The number of names wider than the index increased by 2 to 46 as the day's range fell to 10.5bps (one-week average 8.92bps), between low bid at 136 and high offer at 146.5 and higher beta credits (4.58%) underperformed lower beta credits (4.11%).

In IG, wideners outpaced tighteners by around 12-to-1, with 111 credits notably wider. By sector, CONS saw 92% names wider, ENRGs 88% names wider, FINLs 81% names wider, INDUs 93% names wider, and TMTs 87% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 122.81bps and the latter at 119.48bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 267.62bps from 248.64bps, and remains above the short-term average of 252.07bps, with the HY/XOver ratio rising to 1.36x, below its 5-day mean of 1.36x. The IG-Main spread compressed to 18.5bps from 20.62bps, but remains above the short-term average of 18.05bps, with the IG/Main ratio falling to 1.15x, below its 5-day mean of 1.16x.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 5.1bps to 119.5bps, with 5 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 4.7bps to 168.51bps, with Finance names (worst) wider by 34.98bps to 707.43bps, Brokers (best) wider by 1.88bps to 194.7bps, and Banks wider by 6.46bps to 221.33bps. Monolines are trading wider on average by 147.46bps (5.04%) to 2564.44bps.

In IG, FINLs outperformed non-FINLs (3.52% wider to 4.46% wider respectively), with the former (IG FINLs) wider by 10.9bps to 320.7bps, with 4 of the 21 names tighter. The IG CDS market (as per CDX) is 35.2bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (105.52bps), with the bond ETFs outperforming the IG CDS market by around 4bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) widened 5.42bps to 122.81bps (with ITRX FINLs -trending wider- weaker by 5.14 to 120bps) and is currently trading at the wides of the week's range at 100%, between 122.81 to 105.5bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 100.03%, between 82.22 to 68.54bps. ExHVOL outperformed LoVOL as the differential compressed to 3.5bps from 7.08bps, and remains below the short-term average of 4.18bps. The Main exFINLS to IG ExHVOL differential decompressed to 37.09bps from 32.78bps, and remains above the short-term average of 33.69bps.

Commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +5.12bps to 169.09 (42 wider - 3 tighter <> 33 steeper - 16 flatter).

CDX12 IG +2.5bps to 140 ($-0.1 to $98.32) (FV +6.13bps to 151.79) (109 wider - 7 tighter <> 82 steeper - 43 flatter) - Trend Wider.

CDX12 HVOL +10bps to 315 (FV +15.52bps to 375.92) (29 wider - 1 tighter <> 18 steeper - 12 flatter) - Trend Wider.

CDX12 ExHVOL +0.13bps to 84.74 (FV +3.42bps to 87.35) (80 wider - 15 tighter <> 31 steeper - 64 flatter).

CDX11 XO +19.5bps to 353.3 (FV +19.56bps to 437.26) (32 wider - 2 tighter <> 13 steeper - 21 flatter) - Trend Wider.

CDX12 HY (30% recovery) Px $-1.01 to $82.875 / +35.5bps to 1015.6 (FV +59.77bps to 855.72) (94 wider - 1 tighter <> 18 steeper - 77 flatter) - Trend Wider.

LCDX12 (65% recovery) Px $-0.37 to $83.5 / +18.22bps to 817.82 - Trend Wider.

MCDX12 +5.5bps to 189.5bps. - Trend Wider.

CDR Counterparty Risk Index rose 5.4bps (3.29%) to 169.21bps (13 wider - 1 tighter).

CDR Government Risk Index rose 1.26bps (1.9%) to 67.67bps.

DXY weakened 0.6% to 80.23.

Oil rose $0.41 to $70.88.

Gold rose $5.05 to $939.85.

VIX fell 1.14pts to 31.49%.

10Y US Treasury yields rose 1.9bps to 3.68%.

S&P500 Futures lost 0.19% to 910.3. Sphere: Related Content
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