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Daily Credit Summary: April 21 - The Great Divide

Tyler Durden's picture




 

Commentary by www.creditresearch.com

Spreads managed to hold onto modest widening today in the US as IG underperformed HY, indices underperformed intrinsics, single-name activity was extremely muted, and low beta underperformed high beta. Notable underperformance in Europe, spreading idiosyncratic sovereign risk to SovX to FINLs to Main and up to XOver was not enough to upset the optimistic US investor today, though it was one of the least convicted days in a long time.

The division between segments of the market appear to be growing as Sovereign and IG risk increases and HY risk decreases as a backdrop of irrepressible demand for yield outweighs risk perception in the US. The short-end of the HY index (3s5s) is between 100 and 120bps steep (index or intrinsics) while in XOver it is 70bps steep - it appears the lack of jump risk perception in the US is considerably greater but the same pattern is evident in IG and Main with IG 26bps steep and Main 18bps although all 3Y levels are actually very similar. While the macro outlook for Europe certainly appears more immediately concerning, credit markets appear to be more concerned about the US past the next election cycle (though this is hardly an apples to apples comparison, the risk-measures are similar).

Today's jump in the PIIGS, now over 70% of the risk in SovX pushed SovX back above 100bps. SovX intrinsics were last above 100bps from 2/3/10 to 2/11/10 and had remained above 100bps from 11/25/08 to 4/3/09! The peak in SovX intrinsics was 166bps on 2/24/09. Our strategy discussions today indicated how broad equity and credit markets for corporates are actually relatively in sync empirically (back to SEP08 levels) despite optical apperances but are due for a turn from recovery to expansion - a credit negative. Sovereign risk in developed nations (whether SovX or CDR's GRI) is dramatically wider than the levels of SEP08 (around 45bps) and in fact are much closer to the most risky periods during the crisis (remember SovX has only traded for a few months so creating these intrinsics indices is the only way to consider sovereign risk through this cycle).

At the short-end today, FINLs underperformed the rest of the sectors as the whole FINL curve shifted somewhat parallel in nature today (raising those fwd rates) but it was CONSumer credits that steepened the most as UHS looks to be in play again (on no news) as UNH also steepened at the short-end and widened. The underperformance of low beta names today is perhaps driven by sovereign strains but the rise in dispersion is notable in that we would not expect that on a HY-IG compression day - maybe some idiosyncratic differentiation is leaking back into the market.

CMBX prices fell today (as did REITs) but ABX were up very marginally as builders outperformed - a somewhat oddly 'right' occurrence as they tend to act in opposition on the average day. The builders were the best 'joint' performers across debt and equity today with SPF 5Y -73bps and Stock +1.56SDs (6.34%), BZH 5Y -78bps and Stock +1.1SDs (4.58%), HOV 5Y -123bps and Stock +2.73SDs (11.86%) all improving as SPF looks to issue (and ahead of tomorrow's housing data).

POM, AES, and YRCW also improved on both sides of the capital structure. Among the bigger divergences, equity outperformed credit in LIZ 5Y +7bps and Stock +1.64SDs (5.92%), CTB US 5Y +5bps and Stock +2.46SDs (6.38%), and UTX 5Y +2bps and Stock +3.25SDs (3.68%) while credit outperformed equity in FCX US 5Y -3bps and Stock -1.3SDs (-2.96%), SFD 5Y -11bps and Stock -1.26SDs (-3.05%), and JBLU US 5Y -21bps and Stock -1.07SDs (-3.13%). Airlines were much less hit in credit than they were in equities today after engine concerns. RRI 5Y +32bps and Stock -1.24SDs (-3.58%) and UHS 5Y +15bps and Stock -1.43SDs (-2.73%) were the standouts in the deteriorating camp today.

As we closed, IGs were losing steam (though HY was holding in) and S&P Futures lost 1200 once again.

Index/Intrinsics Changes
CDR LQD 50 NAIG +1.38bps to 79.36 (27 wider - 9 tighter <> 23 steeper - 26 flatter).
CDX14 IG +1.75bps to 87.5 ($-0.08 to $100.56) (FV +0.7bps to 89.15) (67 wider - 19 tighter <> 55 steeper - 63 flatter) - No Trend.
CDX14 HVOL +1bps to 132 (FV +1.06bps to 0) (20 wider - 4 tighter <> 15 steeper - 15 flatter) - No Trend.
CDX14 ExHVOL +1.99bps to 73.45 (FV +0.59bps to 76.15) (47 wider - 48 tighter <> 55 steeper - 40 flatter).
CDX14 HY (30% recovery) Px $+0.05 to $100.88 / -1.2bps to 477.8 (FV -5.83bps to 453.76) (32 wider - 52 tighter <> 48 steeper - 51 flatter) - No Trend.
LCDX14 (70% recovery) Px $-0.32 to $99.81 / +8.3bps to 254.96 - Trend Wider.
MCDX14 +5bps to 120bps. - No Trend.
ITRX13 Main +2.31bps to 83.06bps (FV+1.15bps to 82.38bps).
ITRX13 XOver +6bps to 415bps (FV--0.51bps to 403.72bps).
ITRX13 FINLs +4.5bps to 102.25bps (FV+4.1bps to 103.54bps).
CDR Counterparty Risk Index rose 5.71bps (5.41%) to 111.24bps (13 wider - 1 tighter).
CDR Government Risk Index rose 3.92bps (5.14%) to 80.11bps..
DXY strengthened 0.21% to 81.22.
Oil rose $0.15 to $83.6.
Gold rose $6.05 to $1146.8.
VIX increased 0.59pts to 16.32%.
10Y US Treasury yields fell 6.2bps to 3.74%.
S&P500 Futures lost 0.68% to 1197.2.

Single-Name Movers
Today's biggest absolute movers in IG were Universal Health Services Inc (+13.5bps), SLM Corp (+6.25bps), and Constellation Energy Group Inc. (+5.5bps) in the wideners, and Freeport-McMoRan Copper & Gold Inc. (-2.75bps), Barrick Gold Corp. (-2bps), and Omnicom Group (-1.5bps) in the tighteners. Today's biggest percentage movers in IG were Universal Health Services Inc (+7.92%), XTO Energy Inc (+5.88%), and Hewlett-Packard Company (+5.19%) in the wideners, and Barrick Gold Corp. (-2.76%), Freeport-McMoRan Copper & Gold Inc. (-2.39%), and Omnicom Group (-1.96%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is mixed with 27 wider to 9 tighter, and 23 steeper to 26 flatter as 3 of the 50 credits have inverted curves. The biggest absolute movers were Bank of America Corp. (+11bps), Goldman Sachs Group Inc (+9.5bps), and Citigroup Inc (+8bps) in the wideners, and Berkshire Hathaway Inc (-2.75bps), Ryder System Inc. (-1bps), and TJX Companies, Inc./The (-0.75bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were Bank of America Corp. (+8.7%), Goldman Sachs Group Inc (+7.54%), and Citigroup Inc (+5.61%) in the wideners, and Berkshire Hathaway Inc (-2.83%), TJX Companies, Inc./The (-1.33%), and International Business Machines Corp. (-1.23%) in the tighteners.

In Main, the biggest percentage movers were UBS AG (+15.17%), Banco Bilbao Vizcaya Argentaria SA (+13.09%), and Banco Espirito Santo SA (+8%) in the wideners, and SABMiller plc (-5.97%), JTI (UK) Finance PLC (-3.75%), and Deutsche Post AG (-2.88%) in the tighteners.The largest absolute movers in Main were Banco Espirito Santo SA (+20bps), Banco Bilbao Vizcaya Argentaria SA (+19.5bps), and UBS AG (+14.75bps) in the wideners, and SABMiller plc (-4bps), Bertelsmann AG (-2.5bps), and Daimler AG (-2bps) in the tighteners.

The biggest percentage movers in XOver were Cognis GmbH (+4.79%), Cable & Wireless Plc (+3.33%), and Fiat SpA (+3.26%) in the wideners, and Codere Finance SA (-3.03%), Deutsche Lufthansa AG (-2.74%), and Infineon Technologies AG (-2.5%) in the tighteners.The largest absolute movers in XOver were Seat Pagine Gialle SpA (+16.21bps), Norske Skogindustrier ASA (+15.16bps), and Cable & Wireless Plc (+10bps) in the wideners, and Codere Finance SA (-18.77bps), Grohe Holding GmbH (-10.78bps), and British Airways Plc (-10bps) in the tighteners.

In the names of the HY index, today's biggest percentage movers were International Lease Finance Corp. (+4.55%), RRI Energy, Inc. (+3.13%), and GMAC LLC (+2.99%) in the wideners, and Standard-Pacific Corp (-17.72%), K Hovnanian Enterprises, Inc. (-14.59%), and Beazer Homes USA Inc (-13.87%) in the tighteners. The largest absolute movers in HY were RRI Energy, Inc. (+21.32bps), International Lease Finance Corp. (+17.5bps), and American Axle & Manufacturing Inc (+10bps) in the wideners, and K Hovnanian Enterprises, Inc. (-122.55bps), Beazer Homes USA Inc (-78.13bps), and Standard-Pacific Corp (-70bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) rose 5.71bps (or 5.41%) to 111.24bps. UBS AG (14.75bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst UBS AG (15.17%) is the worst (relative) performer. Royal Bank of Scotland Group Plc (-0.75bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Royal Bank of Scotland Group Plc (-0.53%) is the best (relative) performer.

The CDR Aussie Index fell -0.39bps (or -0.56%) to 69bps. Commonwealth Bank of Australia (3bps) is the worst (absolute) performer, whilst Commonwealth Bank of Australia (4.51%) is the worst (relative) performer. RIO Tinto Ltd (-2.25bps) is the best (absolute) performer, and CSR Limited (-3.09%) is the best (relative) performer.

The CDR Asian Index rose 0.77bps (or 0.93%) to 83.09bps. Promise Co Ltd (24.89bps) is the worst (absolute) performer, whilst Acom Co Ltd (10.24%) is the worst (relative) performer. IDBI Bank Limited (-3.75bps) is the best (absolute) performer, and KT Corp (-3.75%) is the best (relative) performer.

 

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Wed, 04/21/2010 - 18:28 | 311523 Buck Johnson
Buck Johnson's picture

Yep, this is a train wreck in slow motion.  Everyone sees whats going on, but don't really know what to do.  They are like a person whistling through a graveyard, they hope for the best and if that doesn't work make sure they are the first ones onto a lifeboat.

Thu, 04/22/2010 - 06:33 | 312300 Grand Supercycle
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