Daily Credit Summary: April 28 - Skewered PIIGS

Commentary provided by www.creditresearch.com

Spreads were mixed today with the major US indices managing modest gains as HY outperformed IG. This spread compression is optically misleading though as, in general, curves flattened in 3s5s and more technically indices outperformed weak single-names as the theme of the day appeared to be skew compression and profit-taking. Modest short-covering and single-name (sovereign and corporate) repricing was the mood of the day and while we rallied it seemed like there was very little conviction to it (despite IG closing at the day's tights) - though well off yesterday's tights.

SovX went out very rich to intrinsics last night and so today's modest rally in the PIIGS is largely explained by SovX skew compression in our view as it narrowed from 9bps to 1.5bps (as bonds really showed no signs of improvement). Notably Portugal has joined Greece in the realm of the large negative basis - not a good path to follow we are afraid - as it seems sovereign risk traders get more used to pricing in restructuring risks (in reality). Germany remains at record wides to USA (9bps) relative to almost always being tighter and one has to start considering Bund-TSY compression trades.

In IG, high beta outperformed low beta with a modestly positive breadth overall but short-end flatteners and longer-end steepeners seemed the theme in IG. HY made it back to Par, closing exactly a 500bps today (as intrinsics underperformed in 3Y and 5Y) with considerably more flattening in the index than the underlyings (in line with our relative comments on HY and XOver yesterday).

FINLs outperformed non-FINLs in IG (and saw notable compression in the non-IG majors also) as we suspect the combination of shifting into shorter-dated risk and some profit-taking exaggerated any real sentiment improvements. The Fed's statement seemed a non-event (although we did rally into the end of the day?) as we saw no reaction move

Top CDO-related names saw notable decompression in 3Y 4.7bps/3% (we discussed the off-the-run IG underperformance above) and modest compression in 5Y -1bp/0.5%. The broad universe was unch in 5Y (on average) with 155 wider to 185 tighter, some small underperformance in HY names relative to IG but at the highest quality we saw underperformance (that risk barbell re-apperas again) as BBB+ to BB- modestly outperformed today in 5Y. The same pattern is notably evident in the broad unverse with many more wideners in 3Y than tighteners, a non-negligible decompression overall, and a definite systemic risk increase across ratings cohorts.

Leisure and Finance sectors outperformed today in 5Y along with modest outperformance by Consumer Cyclicals. Banks, Autos, and Telecoms industries were the winners while Monolines, Satellite Providers, and IT Hardware were weak (along with Home Builders and Technology broadly).

Credit's compression in 5Y, while looking positive and fitting with equity gains, is actually more a curve story today and we suggest investors beginning to price risk (event or just deterioration) closer in on the curve.

The price of investment grade credit rose 0.21% to around 100.27% of par, while the price of high yield credits rose 0.6% to around 100.16% of par. ABX market prices are higher (improving) by 0.23% of par or in absolute terms, 0.42%. Volatility (VIX) is down -1.73pts to 21.08%, with 10Y TSY selling off (yield rising) 7.7bps to 3.77% and the 2s10s curve flattened by 0.4bps, as the cost of protection on US Treasuries fell 0.25bps to 40bps. 2Y swap spreads tightened 6.9bps to 16.5bps, as the TED Spread tightened by 0.5bps to 0.18% and Libor-OIS deteriorated 1bps to 11bps.

Index/Intrinsics Changes
CDR LQD 50 NAIG -3.53bps to 85.89 (6 wider - 36 tighter <> 33 steeper - 14 flatter).

CDX14 IG -4.75bps to 94 ($0.21 to $100.27) (FV -0.87bps to 94.59) (37 wider - 71 tighter <> 74 steeper - 48 flatter) - Trend Wider.

CDX14 HVOL +7.5bps to 152.5 (FV -1.91bps to 0) (6 wider - 21 tighter <> 21 steeper - 9 flatter) - Trend Wider.

CDX14 ExHVOL -8.62bps to 75.53 (FV -0.54bps to 80.35) (31 wider - 64 tighter <> 42 steeper - 53 flatter).

CDX14 HY (30% recovery) Px $+0.47 to $100.03 / -12bps to 499.2 (FV +3.06bps to 464.02) (54 wider - 38 tighter <> 59 steeper - 40 flatter) - Trend Wider.

LCDX14 (70% recovery) Px $0 to $99.13 / 0bps to 272.99 - Trend Wider.

MCDX14 -3bps to 129bps. - Trend Wider.

ITRX13 Main +2.25bps to 98.25bps (FV+2.64bps to 95.45bps).

ITRX13 XOver +9bps to 455bps (FV+13.5bps to 432.97bps).

ITRX13 FINLs --1bps to 130bps (FV+5.84bps to 135.04bps).

CDR Counterparty Risk Index fell 2.2bps (-1.63%) to 132.75bps (8 wider - 6 tighter).

CDR Government Risk Index fell 5.36bps (-5.49%) to 92.29bps..

DXY strengthened 0.08% to 82.21.

Oil rose $0.96 to $83.4.

Gold fell $2.15 to $1165.7.

VIX fell 1.73pts to 21.08%.

10Y US Treasury yields rose 7.7bps to 3.77%.

S&P500 Futures gained 0.81% to 1190.6.

Single-Name Movers
Today's biggest absolute movers in IG were Marsh & McLennan Companies, Inc. (+7.5bps), SLM Corp (+6.25bps), and Toll Brothers, Inc. (+4.75bps) in the wideners, and American International Group, Inc. (-14bps), Metlife, Inc. (-7.5bps), and Time Warner Cable Inc. (-7.25bps) in the tighteners. Today's biggest percentage movers in IG were Marsh & McLennan Companies, Inc. (+6.67%), Barrick Gold Corp. (+3.97%), and Goodrich Corp (+3.61%) in the wideners, and Duke Energy Carolinas, LLC (-8.51%), American Express Company (-7.1%), and Hewlett-Packard Company (-6.36%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is mixed with 6 wider to 36 tighter, and 33 steeper to 14 flatter as 0 of the 50 credits have inverted curves. The biggest absolute movers were Simon Property Group, L.P. (+3.5bps), Ryder System Inc. (+1.5bps), and Berkshire Hathaway Inc (+1.25bps) in the wideners, and Bank of America Corp. (-20.5bps), Goldman Sachs Group Inc (-17.5bps), and Morgan Stanley (-17.25bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were Simon Property Group, L.P. (+2.88%), Union Pacific Corp. (+1.87%), and TJX Companies, Inc./The (+1.63%) in the wideners, and JP Morgan Chase & Co. (-14.29%), Bank of America Corp. (-12.54%), and Wells Fargo & Company (-10.32%) in the tighteners.

In Main, the biggest percentage movers were Societe Generale SA (+16.75%), BNP Paribas (+13.76%), and Credit Agricole SA (+11.61%) in the wideners, and Cadbury Holdings Limited (-5.71%), Banco Santander, S.A. (-5.56%), and BASF SE (-5.14%) in the tighteners.The largest absolute movers in Main were Banco Espirito Santo SA (+25.92bps), Societe Generale SA (+20.09bps), and Credit Agricole SA (+15.5bps) in the wideners, and Banco Santander, S.A. (-10bps), BASF SE (-2.75bps), and Gas Natural SDG SA (-2.25bps) in the tighteners.

The biggest percentage movers in XOver were Virgin Media Finance PLC (+10.3%), Unity Media GmbH (+10.2%), and Fresenius SE (+9.94%) in the wideners, and Nordic Telephone Company Holding ApS (-2.63%), Infineon Technologies AG (-2.36%), and Alcatel-Lucent (-1.26%) in the tighteners.The largest absolute movers in XOver were Unity Media GmbH (+50bps), ONO Finance, PLC (+47.11bps), and NXP b.v. (+43.39bps) in the wideners, and Alcatel-Lucent (-7.5bps), Nordic Telephone Company Holding ApS (-5bps), and Infineon Technologies AG (-4.42bps) in the tighteners.

In the names of the HY index, today's biggest percentage movers were Beazer Homes USA Inc (+8.66%), Nova Chemicals Corp. (+5.76%), and McClatchy Co./The (+5.65%) in the wideners, and Hertz Corp (-5.29%), Cooper Tire & Rubber Company (-5.22%), and Starwood Hotels & Resorts Worldwide Inc. (-3.91%) in the tighteners. The largest absolute movers in HY were McClatchy Co./The (+49.02bps), Beazer Homes USA Inc (+41.25bps), and AMR Corp (+36.81bps) in the wideners, and K Hovnanian Enterprises, Inc. (-27.61bps), Hertz Corp (-22.5bps), and Cooper Tire & Rubber Company (-17.5bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -2.2bps (or -1.63%) to 132.75bps. BNP Paribas (13bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst HSBC Bank PLC (14.09%) is the worst (relative) performer. Bank of America Corp. (-20.5bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and JP Morgan Chase & Co. (-14.29%) is the best (relative) performer.

The CDR Aussie Index rose 5.19bps (or 7.12%) to 78.14bps. Westpac Banking Corporation (11.55bps) is the worst (absolute) performer, whilst Westpac Banking Corporation (16.62%) is the worst (relative) performer. Woodside Petroleum Limited (-0.5bps) is the best (absolute) performer, and Woodside Petroleum Limited (-0.55%) is the best (relative) performer.

The CDR Asian Index rose 3.45bps (or 3.92%) to 91.47bps. Promise Co Ltd (22.7bps) is the worst (absolute) performer, whilst KT Corp (17.67%) is the worst (relative) performer. Samsung Electronics Co., Ltd. (-0.2bps) is the best (absolute) performer, and Samsung Electronics Co., Ltd. (-0.35%) is the best (relative) performer.