Tuesday, April 28, 2009

Daily Credit Market Summary: April 28 - Inside Day

Spreads were mixed in the US today with IG worse (though with a narrow range Inside Day as HY outperformed), HVOL wider, ExHVOL better, XO wider, and HY rallying. Indices generally outperformed intrinsics 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's skew increased as the index outperformed, and HY outperformed but narrowed the skew.

The names having the largest impact on IG are International Lease Finance Corp. (-35.29bps) pushing IG 0.2bps tighter, and CIT Group Inc (+283.81bps) adding 1.35bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 0.93bps tighter, and CIT Group Inc contributing 6.25bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Boeing Capital Corp (-12.5bps) pushing the index 0.13bps tighter, and Weyerhaeuser Co (+15bps) adding 0.15bps to ExHVOL.

The price of investment grade credit fell 0.02% to around 96.68% of par, while the price of high yield credits rose 0.37% to around 76.06% of par. ABX market prices are higher (improving) by 0.3% of par or in absolute terms, 1.14%. Broadly speaking, CMBX market prices are higher (improving) by 0.94% of par. Volatility (VIX) is down -0.37pts to 37.95%, with 10Y TSY selling off (yield rising) 9.9bps to 3.01% and the 2s10s curve steepened by 6.6bps, as the cost of protection on US Treasuries rose 0bps to 45bps. 2Y swap spreads tightened 3.3bps to 56.25bps, as the TED Spread tightened by 4.7bps to 0.92% and Libor-OIS improved 1.4bps to 84.5bps.

The Dollar weakened with DXY falling 0.63% to 85.158, Oil falling $0.5 to $49.64 (underperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.45% today (a 1.63% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $13.03 to $893.47 as the S&P is down (850.9 -0.69%) underperforming IG credits (177.25bps -0.02%) while IG, which opened wider at 179.5bps, underperforms HY credits. IG11 and XOver11 are +0.02bps and +9.26bps respectively while ITRX11 is +1.25bps to 152.5bps.

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 +10.9bps in IG as differentiation continued. 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.

47% of IG credits are shifting by more than 3bps and 50% of the CDX universe are also shifting significantly (less than the 5 day average of 59%). The number of names wider than the index stayed at 42 as the day's range fell to 6.25bps (one-week average 7.78bps), between low bid at 175 and high offer at 181.25 and higher beta credits (0.52%) underperformed lower beta credits (-0.29%).

In IG, wideners and tighteners were balanced at 1-to-1, with 46 credits wider (120 each in broader liquid universe). By sector, CONS saw 54% names wider (as the Swine Flu impact was felt among Leisure and Lodging), ENRGs 25% names wider, FINLs 48% names wider, INDUs 32% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 151.38bps and the latter at 139.84bps.

Cross Market, we are seeing the HY-XOver spread compressing to 412.93bps from 437.74bps, but remains below the short-term average of 456.56bps, with the HY/XOver ratio falling to 1.48x, below its 5-day mean of 1.53x. The IG-Main spread compressed to 24.75bps from 25.38bps, but remains below the short-term average of 26.94bps, with the IG/Main ratio falling to 1.16x, below its 5-day mean of 1.18x.

In the US, non-financials outperformed financials as IG ExFINLs are tighter by 0.2bps to 139.8bps, with 52 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 8.49bps to 241.39bps, with Brokers (worst) wider by 10.63bps to 305.83bps, Finance names (best) wider by 30.43bps to 1056.91bps, and Banks wider by 8.48bps to 300.52bps. Monolines are trading tighter on average by -30.57bps (0.36%) to 2905.38bps.

In IG, FINLs underperformed non-FINLs (1.75% wider to 0.11% tighter respectively), with the former (IG FINLs) wider by 8.4bps to 487.4bps, with 10 of the 21 names tighter. The IG CDS market (as per CDX) is 10.4bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (166.86bps), with the bond ETFs outperforming the IG CDS market by around 6.66bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 0.63bps to 151.38bps (with ITRX FINLs -trading sideways- weaker by 3.75 to 157bps) and is currently trading tight to its week's range at 12.89%, between 157.19 to 150.52bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading tight to its week's range at 4.28%, between 112.76 to 107.43bps. ExHVOL outperformed LoVOL as the differential compressed to -3.91bps from -2.61bps, but remains below the short-term average of -2.14bps. The Main exFINLS to IG ExHVOL differential decompressed to 47.63bps from 45.92bps, but remains above the short-term average of 45.81bps.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +1.51bps to 231.54 (21 wider - 23 tighter <> 29 steeper - 20 flatter).

CDX12 IG +0.62bps to 177.25 ($-0.02 to $96.68) (FV +1.14bps to 192.87) (46 wider - 62 tighter <> 69 steeper - 52 flatter) - Trend Tighter.

CDX12 HVOL +6bps to 410 (FV +7.13bps to 528.48) (15 wider - 14 tighter <> 13 steeper - 16 flatter) - Trend Tighter.

CDX12 ExHVOL -1.08bps to 103.75 (FV -0.51bps to 104.55) (31 wider - 64 tighter <> 37 steeper - 58 flatter).

CDX11 XO 0bps to 412.8 (FV +1.33bps to 476.59) (16 wider - 12 tighter <> 15 steeper - 18 flatter) - Trend Tighter.

CDX12 HY (30% recovery) Px $+0.37 to $76.06 / -15.5bps to 1268.4 (FV +18.68bps to 1160.44) (49 wider - 41 tighter <> 46 steeper - 47 flatter) - Trend Tighter.

LCDX12 (65% recovery) Px $-0.22 to $74.7 / +218.77bps to 1306.49 - Trend Tighter.

MCDX12 -1.5bps to 198.5bps. - No Trend.

CDR Counterparty Risk Index rose 8.49bps (3.65%) to 241.39bps (ALL 15 wider - 0 tighter).

CDR Government Risk Index rose 0.38bps (0.51%) to 74.49bps.

DXY weakened 0.63% to 85.16.

Oil fell $0.5 to $49.64.

Gold fell $13.03 to $893.47.

VIX fell 0.37pts to 37.95%.

10Y US Treasury yields rose 9.7bps to 3.01%.

S&P500 Futures lost 0.69% to 850.9. Sphere: Related Content
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