Monday, June 15, 2009

Daily Credit Summary: June 15 - June Unwinds

Spreads were broadly wider in the US as all the indices deteriorated (as IG underperformed HY and made new June wides). Indices generally outperformed intrinsics with skews mostly narrower 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 outperformed but narrowed the skew.

The names having the largest impact on IG are Transocean Ltd. (-4.16bps) pushing IG 0.03bps tighter, and CIT Group Inc (+65.04bps) adding 0.37bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 0.06bps tighter, and CIT Group Inc contributing 1.65bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Transocean Ltd. (-4.16bps) pushing the index 0.04bps tighter, and Valero Energy Corp. (+16bps) adding 0.16bps to ExHVOL.

The price of investment grade credit fell 0.28% to around 98.77% of par, while the price of high yield credits fell 0.25% to around 85.63% of par. ABX market prices are lower by 0.55% of par or in absolute terms, 1.45%. Broadly speaking, CMBX market prices are lower by 0.77% of par or in absolute terms, 0.27%. Volatility (VIX) is up 2.66pts to 30.81%, with 10Y TSY rallying (yield falling) 8.1bps to 3.72% and the 2s10s curve flattened by 4.1bps, as the cost of protection on US Treasuries rose 0.13bps to 45bps. 2Y swap spreads tightened 1.4bps to 40.33bps, as the TED Spread widened by 0.5bps to 0.46% and Libor-OIS improved 1.3bps to 40bps.

The Dollar strengthened with DXY rising 1.23% to 81.128, Oil falling $1.55 to $70.49 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 1% today (a 0.92% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $10.95 to $928.35 as the S&P is down (923.6 -2.23%) underperforming IG credits (129bps -0.28%) while IG, which opened wider at 125.75bps, outperforms HY credits. IG11 and XOver11 are +4.91bps and +33.34bps respectively while ITRX11 is +5.65bps to 113.5bps.

The majority of credit curves flattened (curve steepeners unwinds) 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 +4.4bps 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.

53% of IG credits are shifting by more than 3bps and 63% of the CDX universe are also shifting significantly (more than the 5 day average of 48%). The number of names wider than the index increased by 2 to 45 as the day's range fell to 6.12bps (one-week average 8.22bps), between low bid at 124.88 and high offer at 131 and higher beta credits (4.51%) underperformed lower beta credits (3.76%).

In IG, wideners outpaced tighteners by around 10-to-1, with 108 credits notably wider. By sector, CONS saw 92% names wider, ENRGs 75% names wider, FINLs 62% names wider, INDUs 96% names wider, and TMTs 96% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 113.5bps and the latter at 110.15bps.

Cross Market, we are seeing the HY-XOver spread compressing to 207.7bps from 232.64bps, but remains below the short-term average of 259.04bps, with the HY/XOver ratio falling to 1.29x, below its 5-day mean of 1.38x. The IG-Main spread decompressed to 15.5bps from 14.24bps, but remains below the short-term average of 16.99bps, with the IG/Main ratio rising to 1.14x, below its 5-day mean of 1.16x.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 5.2bps to 110.1bps, with 7 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 8.12bps to 151.33bps, with Banks (worst) wider by 11.68bps to 193.69bps, Finance names (best) wider by 20.71bps to 659.91bps, and Brokers wider by 8.38bps to 176.58bps. Monolines are trading wider on average by 24.99bps (1.2%) to 2309.48bps.

In IG, FINLs outperformed non-FINLs (1.92% wider to 4.96% wider respectively), with the former (IG FINLs) wider by 5.6bps to 296.7bps, with 4 of the 21 names tighter. The IG CDS market (as per CDX) is 28.6bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (100.36bps), with the bond ETFs outperforming the IG CDS market by around 2.5bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 5.62bps to 113.5bps (with ITRX FINLs -trending wider- weaker by 5.75 to 113.5bps) and is currently trading at the wides of the week's range at 100%, between 113.5 to 105.5bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 100.01%, between 75.92 to 68.54bps. ExHVOL underperformed LoVOL as the differential decompressed to 1.45bps from -0.65bps, but remains below the short-term average of 3.85bps. The Main exFINLS to IG ExHVOL differential compressed to 36.13bps from 36.22bps, but remains above the short-term average of 32.97bps.

Commentary compliments of

Index/Intrinsics Changes

CDR LQD 50 NAIG091 +5.79bps to 154.48 (46 wider - 3 tighter <> 10 steeper - 39 flatter).

CDX12 IG +6.91bps to 129 ($-0.28 to $98.77) (FV +5.31bps to 140.19) (108 wider - 11 tighter <> 30 steeper - 95 flatter) - No Trend.

CDX12 HVOL +8.22bps to 290 (FV +12.59bps to 344.11) (26 wider - 1 tighter <> 4 steeper - 26 flatter) - Trend Wider.

CDX12 ExHVOL +6.5bps to 78.16 (FV +3.19bps to 80.9) (82 wider - 13 tighter <> 69 steeper - 26 flatter).

CDX11 XO +12.7bps to 325.2 (FV +14.32bps to 407.16) (33 wider - 1 tighter <> 7 steeper - 27 flatter) - No Trend.

CDX12 HY (30% recovery) Px $-0.2 to $85.675 / +6.9bps to 919.7 (FV +32.61bps to 878.36) (87 wider - 6 tighter <> 16 steeper - 79 flatter) - Trend Tighter.

LCDX12 (65% recovery) Px $-0.47 to $84.27 / +21.65bps to 772.43 - Trend Wider.

MCDX12 +0.5bps to 180.5bps. - Trend Wider.

CDR Counterparty Risk Index rose 8.12bps (5.67%) to 151.33bps (14 wider - 0 tighter).

CDR Government Risk Index rose 0.3bps (0.47%) to 64.6bps.

DXY strengthened 1.23% to 81.13.

Oil fell $1.55 to $70.49.

Gold fell $10.95 to $928.35.

VIX increased 2.66pts to 30.81%.

10Y US Treasury yields fell 8.1bps to 3.72%.

S&P500 Futures lost 2.23% to 923.6. Sphere: Related Content
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