Thursday, June 18, 2009

Daily Credit Summary: June 18 - Hurry Up And Wait

Spreads were broadly wider in the US as all the indices deteriorated. Indices typically underperformed single-names (as we note some pre-roll activity is holding single-names in while macro players drive indices wider) with skews widening in general as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL outperformed pushing the skew wider, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed (with rumors of another HY list today trying to take advantage of the large skew).

Only 9.6% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by 0.82% to 1.31%. IG's vol is around 4.38% per 1 day period, which leaves 98 names higher vol and 27 lower vol than the index.

The names having the largest impact on IG are International Lease Finance Corp. (-38.72bps) pushing IG 0.26bps tighter, and CIT Group Inc (+91.55bps) adding 0.49bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 1.16bps tighter, and CIT Group Inc contributing 2.19bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Cisco Systems Inc. (-10bps) pushing the index 0.11bps tighter, and MDC Holdings Inc (+8bps) adding 0.08bps to ExHVOL.

The price of investment grade credit fell 0.1% to around 98.23% of par, while the price of high yield credits fell 1.63% to around 81.25% of par. ABX market prices are higher (improving) by 0.12% of par or in absolute terms, 0.03%. Broadly speaking, CMBX market prices are higher (improving) by 0.6% of par or in absolute terms, 0.19%. Volatility (VIX) is down -1.51pts to 30.03%, with 10Y TSY selling off (yield rising) 13bps to 3.82% and the 2s10s curve steepened by 3.9bps, as the cost of protection on US Treasuries fell 0.75bps to 44.5bps. 2Y swap spreads widened 5.7bps to 49.19bps, as the TED Spread tightened by 1.1bps to 0.44% and Libor-OIS improved 0.7bps to 37.5bps.

The Dollar strengthened with DXY rising 0.6% to 80.653, Oil rising $0.19 to $71.22 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.92% today (a 0.87% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $6.09 to $932.78 as the S&P rallies (917.7 0.88%) outperforming IG credits (142.25bps -0.1%) while IG, which opened wider at 144.5bps, outperforms HY credits. IG11 and XOver11 are +1.42bps and -2.5bps respectively while ITRX11 is -0.25bps 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 +3.9bps 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.

Only 38% of IG credits are shifting by more than 3bps and 54% of the CDX universe are also shifting significantly (less than the 5 day average of 57%). The number of names wider than the index decreased by 1 to 45 as the day's range fell to 8.5bps (one-week average 8.92bps), between low bid at 139 and high offer at 147.5 and higher beta credits (1.36%) underperformed lower beta credits (0.71%).

In IG, wideners outpaced tighteners by around 3-to-1, with 75 credits notably wider. By sector, CONS saw 46% names wider, ENRGs 63% names wider, FINLs 48% names wider, INDUs 71% names wider, and TMTs 78% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 123bps and the latter at 120.36bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 332.49bps from 270.29bps, but remains above the short-term average of 261.47bps, with the HY/XOver ratio rising to 1.45x, above its 5-day mean of 1.36x. The IG-Main spread decompressed to 20bps from 17.25bps, and remains above the short-term average of 17.88bps, with the IG/Main ratio rising to 1.16x, above its 5-day mean of 1.16x.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 1.5bps to 120.4bps, with 20 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 0.74bps to 170.03bps, with Brokers (worst) wider by 3.44bps to 198.01bps, Finance names (best) tighter by 10.23bps to 701.32bps, and Banks wider by 1.46bps to 225.65bps. Monolines are trading wider on average by 35.78bps (1.52%) to 2583.34bps.

In IG, FINLs outperformed non-FINLs (0.92% wider to 1.3% wider respectively), with the former (IG FINLs) wider by 3bps to 325.1bps, with 7 of the 21 names tighter. The IG CDS market (as per CDX) is 38.9bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (103.35bps), with the bond ETFs outperforming the IG CDS market by around 4.67bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 0.13bps to 123bps (with ITRX FINLs -trending wider- better by 0.75 to 119.25bps) and is currently trading at the wides of the week's range at 99.16%, between 123.13 to 107.6bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 99.98%, between 82.7 to 71.04bps. ExHVOL underperformed LoVOL as the differential decompressed to 2.47bps from 1.86bps, but remains below the short-term average of 3.33bps. The Main exFINLS to IG ExHVOL differential compressed to 37.83bps from 38.72bps, but remains above the short-term average of 35.1bps.

Commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +0.87bps to 170.39 (29 wider - 13 tighter <> 29 steeper - 20 flatter).

CDX12 IG +2.5bps to 142.25 ($-0.1 to $98.23) (FV +1.77bps to 153.1) (75 wider - 27 tighter <> 68 steeper - 57 flatter) - Trend Wider.

CDX12 HVOL +8bps to 323 (FV +4.65bps to 381) (18 wider - 8 tighter <> 17 steeper - 13 flatter) - Trend Wider.

CDX12 ExHVOL +0.76bps to 85.17 (FV +0.96bps to 87.75) (57 wider - 38 tighter <> 44 steeper - 51 flatter).

CDX11 XO +2.8bps to 351.4 (FV +6.23bps to 439.23) (25 wider - 6 tighter <> 10 steeper - 23 flatter) - Trend Wider.

CDX12 HY (30% recovery) Px $-1.63 to $81.25 / +59.7bps to 1078 (FV +28.12bps to 879.34) (77 wider - 12 tighter <> 27 steeper - 64 flatter) - Trend Wider.

LCDX12 (65% recovery) Px $-0.65 to $82.97 / +33.28bps to 851.49 - Trend Wider.

MCDX12 +5bps to 195bps. - Trend Wider.

CDR Counterparty Risk Index rose 0.74bps (0.44%) to 170.03bps (9 wider - 5 tighter).

CDR Government Risk Index rose 0.4bps (0.59%) to 68.18bps.

DXY strengthened 0.6% to 80.65.

Oil rose $0.19 to $71.22.

Gold fell $6.09 to $932.78.

VIX fell 1.51pts to 30.03%.

10Y US Treasury yields rose 13bps to 3.82%.

S&P500 Futures gained 0.88% to 917.7. Sphere: Related Content
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