Spreads were mixed in the US with IG marginally worse, HVOL a smidge wider, ExHVOL weaker, XO wider, and HY rallying (as intraday ranges were generally half their average levels). Indices generally outperformed intrinsics (with curves flattening and rolls decompressing as unwinds seem the theme of the week) with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew.
The names having the largest impact on IG are Xerox Corp. (-17.5bps) pushing IG 0.13bps tighter, and CIT Group Inc (+131.03bps) adding 0.65bps to IG. HVOL is more sensitive with Xerox Corp. pushing it 0.6bps tighter, and CIT Group Inc contributing 2.94bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Verizon Communications Inc (-7bps) pushing the index 0.07bps tighter, and Constellation Energy Group Inc. (+18bps) adding 0.18bps to ExHVOL.
The price of investment grade credit fell 0.03% to around 98.07% of par, while the price of high yield credits rose 0.285% to around 81.38% of par. ABX market prices are higher (improving) by 0.08% of par or in absolute terms, 0.94%. Broadly speaking, CMBX market prices are higher (improving) by 0.21% of par or in absolute terms, 0.07%. Volatility (VIX) is down -0.59pts to 30.58%, with 10Y TSY rallying (yield falling) 4.3bps to 3.64% and the 2s10s curve flattened by 1.8bps, as the cost of protection on US Treasuries rose 0.91bps to 47bps. 2Y swap spreads tightened 0.5bps to 46bps, as the TED Spread tightened by 1.3bps to 0.41% and Libor-OIS improved 0.1bps to 37.1bps.
The Dollar weakened with DXY falling 1.17% to 79.838, Oil rising $2.28 to $69.21 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 3.04% today (a 2.24% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $3.28 to $925.98 as the S&P rallies (890.2 0.18%) outperforming IG credits (146bps -0.03%) while IG, which opened wider at 147.25bps, underperforms HY credits. IG11 and XOver11 are +0.13bps and +12.85bps respectively while ITRX11 is +2.04bps to 128.25bps.
The majority of credit curves flattened as the vol term structure flattened with VIX/VIXV rising implying a more bearish/less volatile short-term outlook (normally indicative of short-term spread decompression expectations).
Dispersion rose 14bps in IG (as it appears the shift from syetemic to idiosyncratic risk is occurring again). 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 36% of IG credits are shifting by more than 3bps and 44% of the CDX universe are also shifting significantly (less than the 5 day average of 55%). The number of names wider than the index stayed at 46 as the day's range fell to 4.75bps (one-week average 6.88bps), between low bid at 144 and high offer at 148.75 and higher beta credits (1.95%) underperformed lower beta credits (-0.39%).
In IG, wideners outpaced tighteners by around 3-to-2, with 52 credits notably wider. By sector, CONS saw 35% names wider, ENRGs 44% names wider, FINLs 76% names wider, INDUs 46% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 129bps and the latter at 123.05bps.
Cross Market, we are seeing the HY-XOver spread compressing to 290.52bps from 313.96bps, and remains below the short-term average of 294.84bps, with the HY/XOver ratio falling to 1.37x, below its 5-day mean of 1.39x. The IG-Main spread compressed to 17.75bps from 19.04bps, but remains below the short-term average of 19.62bps, with the IG/Main ratio falling to 1.14x, below its 5-day mean of 1.16x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 0.2bps to 123bps, with 53 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 1.96bps to 174.2bps, with Finance names (worst) wider by 20.87bps to 747.01bps, Brokers (best) wider by 1.25bps to 202.08bps, and Banks wider by 4.29bps to 234.26bps. Monolines are trading wider on average by 55.79bps (1.86%) to 2847.43bps.
In IG, FINLs underperformed non-FINLs (6.04% wider to 0.15% tighter respectively), with the former (IG FINLs) wider by 20.2bps to 353.8bps, with 3 of the 21 names tighter. The IG CDS market (as per CDX) is 38.6bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (107.35bps), with the bond ETFs outperforming the IG CDS market by around 1.23bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 1.78bps to 129bps (with ITRX FINLs -trending wider- weaker by 3.08 to 125.25bps) and is currently trading at the wides of the week's range at 100%, between 129 to 117.39bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 100%, between 87.75 to 77.53bps. ExHVOL outperformed LoVOL as the differential compressed to -1.43bps from -1.05bps, but remains below the short-term average of 1.68bps. The Main exFINLS to IG ExHVOL differential decompressed to 42.68bps from 41.89bps, but remains above the short-term average of 38.54bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 +2.19bps to 178.7 (24 wider - 18 tighter <> 25 steeper - 24 flatter).
CDX12 IG +0.25bps to 145.5 ($-0.03 to $98.07) (FV +3.08bps to 159.69) (52 wider - 55 tighter <> 67 steeper - 58 flatter) - Trend Wider.
CDX12 HVOL 0bps to 335 (FV +13.1bps to 406.63) (16 wider - 9 tighter <> 13 steeper - 17 flatter) - Trend Wider.
CDX12 ExHVOL +0.33bps to 85.66 (FV +0.21bps to 89.73) (36 wider - 59 tighter <> 41 steeper - 54 flatter).
CDX11 XO +4.8bps to 381.3 (FV +5.14bps to 463.36) (18 wider - 10 tighter <> 15 steeper - 17 flatter) - Trend Wider.
CDX12 HY (30% recovery) Px $+0.28 to $81.375 / -10.6bps to 1071 (FV +3.65bps to 932.15)
(53 wider - 29 tighter <> 36 steeper - 56 flatter) - Trend Wider.
LCDX12 (65% recovery) Px $+0.5 to $80.95 / -28.99bps to 925.3 - Trend Wider.
MCDX12 +7bps to 215bps. - Trend Wider.
CDR Counterparty Risk Index rose 2.07bps (1.2%) to 174.31bps (12 wider - 2 tighter).
CDR Government Risk Index rose 1.02bps (1.51%) to 68.13bps..
DXY weakened 1.17% to 79.84.
Oil rose $2.28 to $69.21.
Gold rose $3.28 to $925.98.
VIX fell 0.59pts to 30.58%.
10Y US Treasury yields fell 4.5bps to 3.64%.
S&P500 Futures gained 0.18% to 890.2.
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