Thursday, May 21, 2009

Daily Credit Market Summary: May 21 - Holiday

Spreads were broadly wider in the US as all the indices deteriorated (despite modest tightening all day from gap wider opening levels). Indices generally outperformed intrinsics with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed 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 CIT Group Inc (-166.23bps) pushing IG 0.93bps tighter, and American International Group, Inc. (+138.19bps) adding 0.61bps to IG. HVOL is more sensitive with CIT Group Inc pushing it 4.18bps tighter, and American International Group, Inc. contributing 2.73bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Devon Energy Corporation (-5bps) pushing the index 0.05bps tighter, and Southwest Airlines Co. (+15.5bps) adding 0.16bps to ExHVOL.

The price of investment grade credit fell 0.14% to around 97.97% of par, while the price of high yield credits fell 0.37% to around 79.63% of par. ABX market prices are lower by 0.09% of par or in absolute terms, 1.87%. Broadly speaking, CMBX market prices are lower by 0.01% of par or in absolute terms, 0.02%. Volatility (VIX) is up 2.32pts to 31.35%, with 10Y TSY selling off (yield rising) 18.4bps to 3.38% and the 2s10s curve steepened by 15.1bps, as the cost of protection on US Treasuries rose 3.25bps to 37.25bps. 2Y swap spreads widened 3.1bps to 38.63bps, as the TED Spread tightened by 6bps to 0.49% and Libor-OIS improved 5.6bps to 45.9bps.

The Dollar weakened with DXY falling 0.82% to 80.504, Oil falling $1.04 to $61 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 3.28% today (a 2.5% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $15.55 to $954.2 as the S&P is down (889 -1.21%) underperforming IG credits (147.25bps -0.15%) while IG, which opened wider at 146bps, outperforms HY credits. IG11 and XOver11 are +3.75bps and +26.75bps respectively while ITRX11 is +6.5bps to 127bps.

The majority of credit curves flattened (and we heard rumors of correlation desk protection sellers in mid to longer-dated curves).

Dispersion rose +3.8bps 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 43% of IG credits are shifting by more than 3bps and 59% of the CDX universe are also shifting significantly (more than the 5 day average of 59%). The number of names wider than the index stayed at 41 as the day's range rose to 12.5bps (one-week average 9.9bps), between low bid at 140 and high offer at 152.5 and higher beta credits (3.34%) underperformed lower beta credits (1.73%).

In IG, wideners outpaced tighteners by around 5-to-1, with 86 credits wider. By sector, CONS saw 73% names wider, ENRGs 50% names wider, FINLs 71% names wider, INDUs 68% names wider, and TMTs 74% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 128.91bps and the latter at 121.74bps.

Cross Market, we are seeing the HY-XOver spread compressing to 361.74bps from 374.48bps, and remains below the short-term average of 366.81bps, with the HY/XOver ratio falling to 1.47x, below its 5-day mean of 1.47x. The IG-Main spread compressed to 20.25bps from 23.25bps, but remains above the short-term average of 19.72bps, with the IG/Main ratio falling to 1.16x, above its 5-day mean of 1.15x.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 3.6bps to 121.7bps, with 19 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 5.32bps to 153.6bps, with Banks (worst) wider by 3.14bps to 190.29bps, Finance names (best) tighter by 18.18bps to 746.78bps, and Brokers tighter by 0.19bps to 191.58bps. Monolines are trading wider on average by 57.66bps (2.15%) to 2451.64bps.

In IG, FINLs outperformed non-FINLs (0.77% wider to 3.05% wider respectively), with the former (IG FINLs) wider by 2.7bps to 359bps, with 3 of the 21 names tighter. The IG CDS market (as per CDX) is 9.9bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (137.3bps), with the bond ETFs outperforming the IG CDS market by around 11.44bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 6.16bps to 128.91bps (with ITRX FINLs -trending tighter- weaker by 7.88 to 119.38bps) and is currently trading in the middle of the week's range at 42.11%, between 137.38 to 122.75bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading in the middle of the week's range at 41.99%, between 92.88 to 82.29bps. ExHVOL outperformed LoVOL as the differential compressed to -1.43bps from 1.38bps, but remains above the short-term average of -1.86bps. The Main exFINLS to IG ExHVOL differential decompressed to 43.6bps from 39.08bps, but remains below the short-term average of 44.35bps.

Commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +3.04bps to 180.34 (35 wider - 9 tighter <> 11 steeper - 38 flatter).

CDX12 IG +3.5bps to 147.25 ($-0.14 to $97.97) (FV +3.47bps to 159.31) (86 wider - 22 tighter <> 38 steeper - 87 flatter) - Trend Tighter.

CDX12 HVOL +9.4bps to 343.4 (FV +9.32bps to 402.16) (25 wider - 2 tighter <> 8 steeper - 22 flatter) - Trend Tighter.

CDX12 ExHVOL +1.64bps to 85.31 (FV +1.84bps to 91.04) (61 wider - 34 tighter <> 65 steeper - 30 flatter).

CDX11 XO +5.1bps to 352.5 (FV +10.38bps to 426.89) (28 wider - 3 tighter <> 10 steeper - 24 flatter) - No Trend.

CDX12 HY (30% recovery) Px $-0.37 to $79.63 / +14bps to 1128.2 (FV +37.36bps to 1008.94) (83 wider - 11 tighter <> 22 steeper - 76 flatter) - Trend Tighter.

LCDX12 (65% recovery) Px $-0.89 to $80.05 / +55.41bps to 1033.16 - Trend Tighter.

MCDX12 +5bps to 175bps. - Trend Tighter.

CDR Counterparty Risk Index rose 5.39bps (3.64%) to 153.67bps (14 wider - 1 tighter).

CDR Government Risk Index rose 5.07bps (9.45%) to 58.71bps.

DXY weakened 0.82% to 80.5.

Oil fell $1.04 to $61.

Gold rose $15.55 to $954.2.

VIX increased 2.32pts to 31.35%.

10Y US Treasury yields rose 17.7bps to 3.37%.

S&P500 Futures lost 1.21% to 889. Sphere: Related Content
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