Wednesday, April 15, 2009

Daily Credit Market Summary: April 15 - HY Bear Trap

Spreads were mixed in the US today with IG tighter, HVOL improving, ExHVOL weaker, XO stronger, and HY rallying (with single-names outperforming indices once again on low volumes). Indices typically underperformed single-names with skews widening in general as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.

The names having the largest impact on IG are Whirlpool Corp. (-55bps) pushing IG 0.41bps tighter, and Textron Financial Corp (+123.88bps) adding 0.87bps to IG. HVOL is more sensitive with Whirlpool Corp. pushing it 1.91bps tighter, and Textron Financial Corp contributing 4.03bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Viacom Inc. (-20bps) pushing the index 0.2bps tighter, and United Parcel Service Inc. (+5bps) adding 0.05bps to ExHVOL.

The price of investment grade credit rose 0.07% to around 96.7% of par, while the price of high yield credits rose 0.37% to around 75.25% of par. ABX market prices are higher (improving) by 0.01% of par or in absolute terms, 0.14%. Broadly speaking, CMBX market prices are lower by 0.01% of par or in absolute terms, 0.01%. Volatility (VIX) is down 1.5pts to 36.83%, with 10Y TSY rallying (yield falling) 1.6bps to 2.77% and the 2s10s curve flattened by 1.6bps, as the cost of protection on US Treasuries rose 0.5bps to 44.5bps. 2Y swap spreads tightened 2.3bps to 55.5bps, as the TED Spread widened by 0.7bps to 0.97% and Libor-OIS improved 0.8bps to 92.2bps.

The Dollar strengthened with DXY rising 0.52% to 85.081, Oil rising $0.04 to $49.45 (outperforming the dollar as the value of Oil (rebased to the value of gold) fell by 0.15% today (a 0.6% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $2.09 to $892.81 as the S&P rallies (841.2 0.11%) outperforming IG credits (176bps 0.07%) while IG, which opened at 178bps, underperforms HY credits. IG11 and XOver11 are -0.5bps and -8.01bps respectively while ITRX11 is -1.62bps to 152.88bps.

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 +1.5bps 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 increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.

56% of IG credits are shifting by more than 3bps and 55% of the CDX universe are also shifting significantly (less than the 5 day average of 63%). The number of names wider than the index stayed at 48 as the day's range fell to 7.5bps (one-week average 9.3bps), between low bid at 175 and high offer at 182.5 and higher beta credits (-3.18%) outperformed lower beta credits (-1.68%).

In IG, wideners were outpaced by tighteners by around 4-to-1, with only 17 credits wider. By sector, CONS saw 11% names wider, ENRGs 6% names wider, FINLs 10% names wider, INDUs 29% names wider, and TMTs 9% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 153.04bps and the latter at 160.28bps.

Cross Market, we are seeing the HY-XOver spread compressing to 445.02bps from 452.65bps, but remains above the short-term average of 436.15bps, with the HY/XOver ratio falling to 1.52x, above its 5-day mean of 1.49x. The IG-Main spread decompressed to 23.12bps from 23bps, but remains below the short-term average of 23.47bps, with the IG/Main ratio rising to 1.15x, above its 5-day mean of 1.15x.

In the US, non-financials outperformed financials as IG ExFINLs are tighter by 4.1bps to 160.3bps, with 75 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 0.49bps to 218.88bps, with Finance names (worst) wider by 2.96bps to 956.96bps, Banks (best) tighter by 4.85bps to 286.83bps, and Brokers tighter by 1.88bps to 262.39bps. Monolines are trading wider on average by 261.57bps (10.78%) to 2676.95bps.

In IG, FINLs underperformed non-FINLs (1.49% tighter to 2.49% tighter respectively), with the former (IG FINLs) tighter by 7.1bps to 471.1bps, with 17 of the 21 names tighter. The IG CDS market (as per CDX) is -7.3bps rich (we'd expect LQD to outperform TLH) to the LQD-TLH-implied valuation of investment grade credit (183.3bps), with the bond ETFs outperforming the IG CDS market by around 1.44bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 2.04bps to 153.04bps (with ITRX FINLs -trending tighter- weaker by 0.08 to 152.25bps) and is currently trading tight to its week's range at 2.58%, between 164.73 to 152.73bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0.01%, between 109.66 to 104.21bps. ExHVOL underperformed LoVOL as the differential decompressed to -5.26bps from -9.57bps, and remains above the short-term average of -7.84bps. The Main exFINLS to IG ExHVOL differential compressed to 54.09bps from 58.9bps, and remains below the short-term average of 58.24bps.

Commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -7.35bps to 243.09 (3 wider - 43 tighter <> 38 steeper - 11 flatter).

CDX12 IG -1.5bps to 176 ($0.07 to $96.7) (FV -4.84bps to 208.12) (16 wider - 95 tighter <> 78 steeper - 46 flatter) - Trend Tighter.

CDX12 HVOL -15bps to 420 (FV -12.25bps to 552.31) (3 wider - 26 tighter <> 23 steeper - 7 flatter) - Trend Tighter.

CDX12 ExHVOL +2.76bps to 98.95 (FV -2.81bps to 114.62) (13 wider - 82 tighter <> 33 steeper - 62 flatter).

CDX11 XO -63.5bps to 454.4 (FV -13.99bps to 510.11) (3 wider - 25 tighter <> 24 steeper - 8 flatter) - Trend Tighter.

CDX12 HY (30% recovery) Px $+0.56 to $75.44 / -23.7bps to 1289.5 (FV -24.37bps to 1192.83)
(24 wider - 63 tighter <> 65 steeper - 25 flatter) - Trend Tighter.

LCDX10 (55% recovery) Px $-0.5 to $76 / +34.9bps to 1373.05 - Trend Tighter.

MCDX11 -5bps to 207.5bps. - No Trend.

CDR Counterparty Risk Index fell 0.41bps (-0.19%) to 218.96bps (8 wider - 7 tighter).

CDR Government Risk Index fell 0.67bps (-0.96%) to 69.24bps..

DXY strengthened 0.52% to 85.08.

Oil rose $0.04 to $49.45.

Gold rose $2.09 to $892.81.

VIX fell 1.5pts to 36.83%.

10Y US Treasury yields fell 1.6bps to 2.77%.

S&P500 Futures gained 0.11% to 841.2. Sphere: Related Content
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