Spreads were mixed in the US with IG tighter, HVOL improving, ExHVOL weaker, XO stronger, and HY selling off (but notably changes in credit markets were significantly less positive than in equities). Indices typically underperformed single-names 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 underperformed but compressed the skew, and HY's skew widened as it underperformed.
ONLY 2.4% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by -0.94% to -0.82%. 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 American International Group, Inc. (-96.23bps) pushing IG 0.52bps tighter, and CIT Group Inc (+33.66bps) adding 0.17bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 2.31bps tighter, and CIT Group Inc contributing 0.76bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Wells Fargo & Company (-7bps) pushing the index 0.07bps tighter, and Comcast Corp. (+7.5bps) adding 0.08bps to ExHVOL.
The price of investment grade credit rose 0.08% to around 98.35% of par, while the price of high yield credits fell 0% to around 83% of par. ABX market prices are higher (improving) by 0.15% of par or in absolute terms, 0.31%. Broadly speaking, CMBX market prices are lower by 0.03% of par or in absolute terms, 0%. Volatility (VIX) is down -2.69pts to 26.36%, with 10Y TSY rallying (yield falling) 14.7bps to 3.54% and the 2s10s curve flattened by 6.8bps, as the cost of protection on US Treasuries rose 3.27bps to 43.5bps. 2Y swap spreads tightened 2.7bps to 37.23bps, as the TED Spread widened by 1.2bps to 0.44% and Libor-OIS deteriorated 1.4bps to 38.2bps.
The Dollar weakened with DXY falling 0.24% to 80.363, Oil rising $1.65 to $70.32 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.55% today (a 2.16% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $7.85 to $939.25 as the S&P rallies (916.8 2.09%) outperforming IG credits (139.25bps 0.08%) while IG, which opened wider at 141.5bps, outperforms HY credits. IG11 and XOver11 are -2.75bps and +4.5bps respectively while ITRX11 is +0.38bps to 121.38bps.
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), and additionally the ratio has dropped below 0.9x which is exceptionally bearish for stocks and spreads.
Dispersion fell 3.1bps 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.
Only 20% of IG credits are shifting by more than 3bps and 39% of the CDX universe are also shifting significantly (less than the 5 day average of 49%). The number of names wider than the index increased by 1 to 47 as the day's range fell to 5.75bps (one-week average 5.43bps), between low bid at 137.5 and high offer at 143.25 and higher beta credits (-0.47%) underperformed lower beta credits (-1.13%).
In IG, wideners were outpaced by tighteners by around 2-to-1, with a mere 28 credits notably wider. By sector, CONS saw 14% names wider, ENRGs 44% names wider, FINLs 19% names wider, INDUs 14% names wider, and TMTs 35% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 122.26bps and the latter at 119.88bps.
Cross Market, we are seeing the HY-XOver spread compressing to 260.14bps from 264.64bps, but remains below the short-term average of 294.16bps, with the HY/XOver ratio falling to 1.35x, below its 5-day mean of 1.39x. The IG-Main spread compressed to 17.87bps from 20bps, and remains below the short-term average of 19.54bps, 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 tighter by 1bps to 119.9bps, with 59 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 2.08bps to 167.59bps, with Finance names (worst) wider by 6.2bps to 739.7bps, Brokers (best) tighter by 3.63bps to 194.58bps, and Banks tighter by 2.29bps to 228.62bps. Monolines are trading tighter on average by -45.59bps (0.41%) to 2853.33bps.
In IG, FINLs just outperformed non-FINLs (1% tighter to 0.82% tighter respectively), with the former (IG FINLs) tighter by 3.5bps to 347.2bps, with 11 of the 21 names tighter. The IG CDS market (as per CDX) is 31.6bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (107.69bps), with the bond ETFs underperforming the IG CDS market by around 7.45bps.
In Europe, ITRX Main ex-FINLs (underperforming FINLs) widened 0.73bps to 122.26bps (with ITRX FINLs -trading sideways- better by 1 to 117.88bps) and is currently trading tight to its week's range at 22.08%, between 129 to 120.35bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading tight to its week's range at 20.74%, between 87.99 to 81.86bps. ExHVOL outperformed LoVOL as the differential compressed to -0.57bps from -0.05bps, but remains below the short-term average of 0.01bps. The Main exFINLS to IG ExHVOL differential decompressed to 39.69bps from 39.58bps, but remains below the short-term average of 39.87bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 -1.82bps to 174.96 (9 wider - 29 tighter <> 29 steeper - 20 flatter).
CDX12 IG -2.5bps to 138.5 ($0.11 to $98.38) (FV -1.31bps to 156.06) (27 wider - 66 tighter <> 76 steeper - 48 flatter) - Trend Tighter.
CDX12 HVOL -5.5bps to 322.5 (FV -3.35bps to 395.82) (6 wider - 15 tighter <> 19 steeper - 11 flatter) - Trend Tighter.
CDX12 ExHVOL -1.55bps to 80.39 (FV -0.72bps to 87.93) (21 wider - 74 tighter <> 38 steeper - 57 flatter).
CDX11 XO -1bps to 373.8 (FV -1.39bps to 451.44) (12 wider - 17 tighter <> 18 steeper - 15 flatter) - Trend Wider.
CDX12 HY (30% recovery) Px $0 to $83 / 0bps to 1009.9 (FV -16.33bps to 907.5) (32 wider - 53 tighter <> 56 steeper - 34 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.65 to $83.25 / -33.38bps to 824.02 - Trend Tighter.
MCDX12 +5bps to 220bps. - Trend Wider.
CDR Counterparty Risk Index fell 1.89bps (-1.11%) to 167.78bps (4 wider - 10 tighter).
CDR Government Risk Index fell 1.27bps (-2%) to 62.36bps..
DXY weakened 0.24% to 80.36.
Oil rose $1.65 to $70.32.
Gold rose $7.85 to $939.25.
VIX fell 2.69pts to 26.36%.
10Y US Treasury yields fell 15.1bps to 3.54%.
S&P500 Futures gained 2.09% to 916.8.
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