Spreads were mostly tighter in the US with HY outperforming IG and only HVOL (dominated by CIT) wider close-to-close (although all the indices were wider open-to-close as the morning's derisking gave way to rerisking in ther afternoon). Indices generally outperformed intrinsics (as we suspect correlation desks were actively covering between index and single-name hedges and off-the-runs outperformed on-the-runs) 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 underperformed but compressed the skew, and HY's skew widened as it underperformed (but HY made new contract tights below 900bps).
The names having the largest impact on IG are Metlife, Inc. (-47.5bps) pushing IG 0.38bps tighter, and CIT Group Inc (+586.03bps) adding 2.2bps to IG. HVOL is more sensitive with Metlife, Inc. pushing it 1.7bps tighter, and CIT Group Inc contributing 9.88bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Deere & Co. (-15bps) pushing the index 0.16bps tighter, and Capital One Bank (+5bps) adding 0.05bps to ExHVOL.
The price of investment grade credit rose 0.11% to around 99.05% of par, while the price of high yield credits rose 0.34% to around 86.34% of par. ABX market prices are higher (improving) by 0.13% of par or in absolute terms, 0.04%. Broadly speaking, CMBX market prices are higher (improving) by 1.63% of par or in absolute terms, 0.48%. Volatility (VIX) is down -0.53pts to 23.87%, with 10Y TSY rallying (yield falling) 12.2bps to 3.49% and the 2s10s curve flattened by 6.5bps, as the cost of protection on US Treasuries fell 0.76bps to 35bps. 2Y swap spreads tightened 3.8bps to 43.25bps, as the TED Spread tightened by 1.9bps to 0.32% and Libor-OIS deteriorated 0.2bps to 30.9bps.
The Dollar weakened with DXY falling 0.08% to 78.841, Oil rising $0.74 to $64.72 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.13% today (a 1.08% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $0.25 to $948.95 as the S&P rallies (952.4 0.36%) outperforming IG credits (122.5bps 0.11%) while IG, which opened tighter at 123bps, underperforms HY credits. IG11 and XOver11 are -2.94bps and -15bps respectively while ITRX11 is -2.62bps to 100.38bps.
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 rose +39.6bps 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.
58% of IG credits are shifting by more than 3bps and 62% of the CDX universe are also shifting significantly (more than the 5 day average of 60%). The number of names wider than the index stayed at 41 as the day's range rose to 5.5bps (one-week average 6.25bps), between low bid at 120 and high offer at 125.5 and higher beta credits (-2.41%) underperformed lower beta credits (-4.75%).
In IG, wideners were outpaced by tighteners by around 8-to-1, with only 10 credits notably wider. By sector, CONS saw 11% names wider, ENRGs 6% names wider, FINLs 19% names wider, INDUs 0% names wider, and TMTs 4% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 101.85bps and the latter at 103.55bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 230.02bps from 226.28bps, but remains above the short-term average of 226.11bps, with the HY/XOver ratio rising to 1.35x, above its 5-day mean of 1.32x. The IG-Main spread compressed to 22.12bps from 22.13bps, but remains above the short-term average of 21.06bps, with the IG/Main ratio rising to 1.22x, above its 5-day mean of 1.19x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 4.1bps to 103.6bps, with 88 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 2.13bps to 125.34bps, with Finance names (worst) wider by 70.17bps to 895.39bps, Brokers (best) tighter by 0.75bps to 142.08bps, and Banks wider by 2.21bps to 171.54bps. Monolines are trading tighter on average by -28.31bps (0.78%) to 2627.31bps.
In IG, FINLs underperformed non-FINLs (2.45% wider to 3.81% tighter respectively), with the former (IG FINLs) wider by 8.3bps to 347.4bps, with 17 of the 21 names tighter. The IG CDS market (as per CDX) is 22.5bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (99.95bps), with the bond ETFs underperforming the IG CDS market by around 2.96bps.
In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 2.03bps to 101.85bps (with ITRX FINLs -trending tighter- better by 5 to 94.5bps) and is currently trading tight to its week's range at 0%, between 116.94 to 101.85bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0%, between 82.8 to 69.71bps. ExHVOL outperformed LoVOL as the differential compressed to -8.32bps from -7.91bps, but remains above the short-term average of -8.65bps. The Main exFINLS to IG ExHVOL differential decompressed to 40.46bps from 38.71bps, but remains below the short-term average of 40.83bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 -2.66bps to 149.5 (7 wider - 32 tighter <> 20 steeper - 29 flatter).
CDX12 IG -2.63bps to 122.5 ($0.11 to $99.05) (FV -2.18bps to 141.94) (11 wider - 103 tighter <> 66 steeper - 57 flatter) - Trend Tighter.
CDX12 HVOL +2bps to 317 (FV +1.27bps to 392.51) (4 wider - 25 tighter <> 14 steeper - 16 flatter) - Trend Tighter.
CDX12 ExHVOL -4.09bps to 61.08 (FV -3.16bps to 73.23) (7 wider - 88 tighter <> 43 steeper - 52 flatter).
CDX11 XO -10.7bps to 338 (FV -11.41bps to 419.53) (4 wider - 29 tighter <> 22 steeper - 12 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.31 to $86.31 / -10.2bps to 895.1 (FV -18.79bps to 822.04) (14 wider - 78 tighter <> 60 steeper - 33 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.37 to $88 / -14.78bps to 635.48 - Trend Tighter.
MCDX12 -10bps to 170bps. - Trend Tighter.
CDR Counterparty Risk Index fell 1.79bps (-1.41%) to 125.67bps (6 wider - 8 tighter).
CDR Government Risk Index fell 2.61bps (-4.84%) to 51.39bps..
DXY weakened 0.08% to 78.84.
Oil rose $0.74 to $64.72.
Gold rose $0.25 to $948.95.
VIX fell 0.53pts to 23.87%.
10Y US Treasury yields fell 12.2bps to 3.49%.
S&P500 Futures gained 0.36% to 952.4.
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