Tuesday, May 19, 2009

Daily Credit Market Summary: May 19 - Another Squeeze

Spreads improved (tightened) across the board as all the indices rallied today (as a late day sell-off in stocks dragged a short-squeezed IG off its tights). Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY outperformed but narrowed the skew.

The names having the largest impact on IG are Hartford Financial Services Group (-47.13bps) pushing IG 0.37bps tighter, and CIT Group Inc (+23.46bps) adding 0.12bps to IG. HVOL is more sensitive with Hartford Financial Services Group pushing it 1.64bps tighter, and CIT Group Inc contributing 0.56bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Constellation Energy Group Inc. (-25bps) pushing the index 0.25bps tighter, and Loews Corporation (+1.5bps) adding 0.02bps to ExHVOL.

The price of investment grade credit rose 0.19% to around 98.12% of par, while the price of high yield credits rose 1.09% to around 80.22% of par. ABX market prices are higher (improving) by 0.38% of par or in absolute terms, 0.68%. Broadly speaking, CMBX market prices are higher (improving) by 0.32% of par or in absolute terms, 1.06%. Volatility (VIX) is down -1.44pts to 28.8% (we hear outright vol sellers into the holiday, cyclical drops in vol pre-summer, and dispersion traders selling index vol/buying single-name vol), with 10Y TSY selling off (yield rising) 0.9bps to 3.24% and the 2s10s curve steepened by 3.4bps, as the cost of protection on US Treasuries fell 2.75bps to 35bps. 2Y swap spreads tightened 0.8bps to 36.5bps, as the TED Spread tightened by 5.1bps to 0.58% and Libor-OIS improved 3.3bps to 54.6bps.

The Dollar weakened with DXY falling 0.71% to 82.082, Oil rising $0.62 to $59.65 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.27% today (a 0.34% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $7.1 to $925.35 as the S&P is down (906.6 -0.06%) outperforming IG credits (143.5bps 0.2%) while IG, which opened tighter at 145.5bps, underperforms HY credits. IG11 and XOver11 are -5bps and -32.5bps respectively while ITRX11 is -9bps to 126.5bps.

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 fell -1.3bps 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.

71% of IG credits are shifting by more than 3bps and 68% of the CDX universe are also shifting significantly (more than the 5 day average of 62%). The number of names wider than the index decreased by 2 to 44 as the day's range fell to 10.5bps (one-week average 8.13bps), between low bid at 139 and high offer at 149.5 and higher beta credits (-5.42%) outperformed lower beta credits (-4.77%).

In IG, wideners were outpaced by tighteners by around 8-to-1, with 6 credits wider. By sector, CONS saw 0% names wider, ENRGs 0% names wider, FINLs 14% names wider, INDUs 0% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 128.63bps and the latter at 123.43bps.

Cross Market, we are seeing the HY-XOver spread compressing to 347.4bps from 356.29bps, but remains above the short-term average of 342.91bps, with the HY/XOver ratio rising to 1.46x, above its 5-day mean of 1.43x. The IG-Main spread decompressed to 17bps from 12.5bps, but remains below the short-term average of 18.59bps, with the IG/Main ratio rising to 1.13x, below its 5-day mean of 1.14x.

In the US, non-financials outperformed financials as IG ExFINLs are tighter by 6.7bps to 123.4bps, with 96 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 12.4bps to 157.14bps, with Finance names (worst) tighter by 16.25bps to 787.75bps, Brokers (best) tighter by 11.88bps to 201.45bps, and Banks tighter by 11.14bps to 192.58bps. Monolines are trading tighter on average by -115.66bps (4.23%) to 2508bps.

In IG, FINLs underperformed non-FINLs (3.7% tighter to 5.16% tighter respectively), with the former (IG FINLs) tighter by 14.3bps to 372.2bps, with 18 of the 21 names tighter. The IG CDS market (as per CDX) is 2.1bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (141.45bps), with the bond ETFs outperforming the IG CDS market by around 0.52bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 8.75bps to 128.63bps (with ITRX FINLs -trending tighter- better by 10 to 118bps) and is currently trading tight to its week's range at 0%, between 137.38 to 128.63bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0.01%, between 93.74 to 86.71bps. ExHVOL underperformed LoVOL as the differential decompressed to -5.58bps from -8.66bps, but remains below the short-term average of -2.81bps. The Main exFINLS to IG ExHVOL differential compressed to 47.5bps from 53.17bps, but remains above the short-term average of 44.72bps.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes

CDR LQD 50 NAIG091 -8.25bps to 185.1 (2 wider - 47 tighter <> 45 steeper - 4 flatter).

CDX12 IG -4.5bps to 143.5 ($0.19 to $98.12) (FV -7.91bps to 162.66) (6 wider - 114 tighter <> 97 steeper - 23 flatter) - Trend Tighter.

CDX12 HVOL -9bps to 341 (FV -17.81bps to 411.77) (3 wider - 27 tighter <> 24 steeper - 6 flatter) - Trend Tighter.

CDX12 ExHVOL -3.08bps to 81.13 (FV -5.08bps to 92.71) (3 wider - 92 tighter <> 22 steeper - 73 flatter).

CDX11 XO 0bps to 347.4 (FV -13.74bps to 428.6) (3 wider - 31 tighter <> 26 steeper - 8 flatter) - Trend Wider.

CDX12 HY (30% recovery) Px $+1.09 to $80.22 / -41.4bps to 1104.4 (FV -15.76bps to 1015.3) (14 wider - 72 tighter <> 49 steeper - 37 flatter) - Trend Tighter.

LCDX12 (65% recovery) Px $+1.07 to $80.75 / -68.76bps to 996.54 - Trend Tighter.

MCDX12 -15bps to 170bps. - Trend Wider.

CDR Counterparty Risk Index fell 12.4bps (-7.32%) to 157.14bps (0 wider - 15 tighter).

CDR Government Risk Index fell 3.76bps (-6.3%) to 55.93bps.

DXY weakened 0.71% to 82.08.

Oil rose $0.62 to $59.65.

Gold rose $7.1 to $925.35.

VIX fell 1.44pts to 28.8%.

10Y US Treasury yields rose 0.9bps to 3.24%.

S&P500 Futures lost 0.06% to 906.6. Sphere: Related Content
Print this post
blog comments powered by Disqus