Monday, June 22, 2009

Daily Credit Summary: June 22 - World Banked

Spreads were broadly wider in the US as all the indices deteriorated. Indices generally outperformed intrinsics (as post-roll derisking covered by index hedges seemed prevalent) 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 Computer Sciences Corp. (-2.1bps) pushing IG 0.02bps tighter, and CIT Group Inc (+150.87bps) adding 0.78bps to IG. HVOL is more sensitive with RR Donnelley & Sons Company pushing it 0.19bps tighter, and CIT Group Inc contributing 3.47bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Computer Sciences Corp. (-2.1bps) pushing the index 0.02bps tighter, and Southwest Airlines Co. (+15.39bps) adding 0.15bps to ExHVOL.

The price of investment grade credit fell 0.19% to around 98.06% of par, while the price of high yield credits fell 0.63% to around 81% of par. ABX market prices are lower by 0.06% of par or in absolute terms, 0.17%. Broadly speaking, CMBX market prices are higher (improving) by 0% of par or in absolute terms, 0%. Volatility (VIX) is up 3.18pts to 31.17%, with 10Y TSY rallying (yield falling) 9.8bps to 3.69% and the 2s10s curve flattened by 2.5bps, as the cost of protection on US Treasuries rose 1.25bps to 45.5bps. 2Y swap spreads tightened 1.1bps to 46.56bps, as the TED Spread tightened by 1.9bps to 0.42% and Libor-OIS improved 0.3bps to 36.9bps.

The Dollar strengthened with DXY rising 0.71% to 80.835, Oil falling $2.62 to $66.93 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 2.56% today (a 3.06% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $11.55 to $922.5 as the S&P is down (889.1 -2.9%) underperforming IG credits (146.25bps -0.19%) while IG, which opened wider at 144.25bps, outperforms HY credits. IG11 and XOver11 are +5.22bps and +26.06bps respectively while ITRX11 is +6.46bps to 126.13bps.

The majority of credit curves flattened as the vol term structure flattened with VIX/VIXV rising implying a more bullish/less volatile short-term outlook (normally indicative of short-term spread compression expectations).

Dispersion rose 11.9bps 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 decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.

57% of IG credits are shifting by more than 3bps and 65% 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 46 as the day's range fell to 5bps (one-week average 8.18bps), between low bid at 143 and high offer at 148 and higher beta credits (4.93%) underperformed lower beta credits (3.41%).

In IG, wideners outpaced tighteners by around 11-to-1, with 109 credits wider. By sector, CONS saw 81% names wider, ENRGs 81% names wider, FINLs 90% names wider, INDUs 93% names wider, and TMTs 91% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 127.1bps and the latter at 123.38bps.

Cross Market, we are seeing the HY-XOver spread compressing to 317.83bps from 320.43bps, but remains above the short-term average of 281.84bps, with the HY/XOver ratio falling to 1.41x, above its 5-day mean of 1.38x. The IG-Main spread compressed to 20.12bps from 21.83bps, but remains above the short-term average of 19.47bps, with the IG/Main ratio falling to 1.16x, below its 5-day mean of 1.16x.

In the US, non-financials outperformed financials as IG ExFINLs are wider by 5.2bps to 123.4bps, with 10 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 4.63bps to 171.73bps, with Banks (worst) wider by 8.46bps to 230.51bps, Brokers (best) wider by 4.5bps to 199.7bps, and Finance names wider by 19.84bps to 716.3bps. Monolines are trading wider on average by 221.52bps (7.22%) to 2846.69bps.

In IG, FINLs underperformed non-FINLs (4.72% wider to 4.38% wider respectively), with the former (IG FINLs) wider by 15.2bps to 337.9bps, with 0 of the 21 names tighter. The IG CDS market (as per CDX) is 38.4bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (107.83bps), with the bond ETFs outperforming the IG CDS market by around 0.41bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) widened 6.75bps to 127.1bps (with ITRX FINLs -trending wider- weaker by 5.29 to 122.25bps) and is currently trading at the wides of the week's range at 100%, between 127.1 to 113.61bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 100.03%, between 86.3 to 75.92bps. ExHVOL outperformed LoVOL as the differential compressed to -1.24bps from 1.69bps, but remains below the short-term average of 2.31bps. The Main exFINLS to IG ExHVOL differential decompressed to 42.03bps from 36.8bps, and remains above the short-term average of 37.3bps.

Commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +5.66bps to 176.01 (42 wider - 5 tighter <> 20 steeper - 29 flatter).

CDX12 IG +4.75bps to 146.25 ($-0.19 to $98.06) (FV +6.78bps to 157.59) (109 wider - 10 tighter <> 57 steeper - 68 flatter) - Trend Wider.

CDX12 HVOL +15bps to 340 (FV +19.12bps to 396.5) (30 wider - 0 tighter <> 9 steeper - 21 flatter) - Trend Wider.

CDX12 ExHVOL +1.51bps to 85.07 (FV +3.23bps to 89.53) (79 wider - 16 tighter <> 47 steeper - 48 flatter).

CDX11 XO +16bps to 372.7 (FV +17.46bps to 456.96) (31 wider - 3 tighter <> 17 steeper - 17 flatter) - Trend Wider.

CDX12 HY (30% recovery) Px $-0.63 to $81 / +23.5bps to 1085.3 (FV +40.73bps to 926.61) (90 wider - 4 tighter <> 15 steeper - 79 flatter) - Trend Wider.

LCDX12 (65% recovery) Px $-1.3 to $81.1 / +73.43bps to 954.68 - Trend Wider.

MCDX12 +5bps to 205bps. - Trend Wider.

CDR Counterparty Risk Index rose 4.63bps (2.77%) to 171.73bps (14 wider - 0 tighter).

CDR Government Risk Index rose 0.32bps (0.49%) to 67.11bps..

DXY strengthened 0.71% to 80.84.

Oil fell $2.62 to $66.93.

Gold fell $11.55 to $922.5.

VIX increased 3.18pts to 31.17%.

10Y US Treasury yields fell 9.8bps to 3.69%.

S&P500 Futures lost 2.9% to 889.1. Sphere: Related Content
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