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Daily Credit Summary: August 10 - MOMO NO MO
Spreads were broadly wider in the US as all the indices deteriorated (as HY underperformed IG and both closed at one-week wides). Indices typically underperformed single-names with skews widening in general (extending the trend of single-name weakness from the middle of last Friday) as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL's skew widened as it underperformed, XO's skew increased as the index outperformed, and HY's skew widened as it underperformed.
The names having the largest impact on IG are International Lease Finance Corp. (-21.93bps) pushing IG 0.14bps tighter, and American International Group, Inc. (+58.65bps) adding 0.35bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 0.64bps tighter, and American International Group, Inc. contributing 1.53bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Chubb Corp. (-2bps) pushing the index 0.02bps tighter, and Constellation Energy Group Inc. (+30bps) adding 0.3bps to ExHVOL.
The price of investment grade credit fell 0.3% to around 99.44% of par, while the price of high yield credits fell 1.25% to around 89.88% of par. ABX market prices are lower by 0.6% of par or in absolute terms, 0.57%. Broadly speaking, CMBX market prices are lower by 0.54% of par or in absolute terms, 0.13%. Volatility (VIX) is up 1pts to 25.99%, with 10Y TSY rallying (yield falling) 10.6bps to 3.67% and the 2s10s curve flattened by 4.1bps, as the cost of protection on US Treasuries rose 0.93bps to 26bps. 2Y swap spreads tightened 4.4bps to 40.69bps, as the TED Spread tightened by 2.3bps to 0.28% and Libor-OIS improved 0.3bps to 26.2bps.
The Dollar weakened with DXY falling 0.15% to 79.139, Oil falling $1.23 to $69.37 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 1.71% today (a 1.89% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $0.3 to $946 as the S&P is down (992.9 -1.45%) underperforming IG credits (113.5bps -0.3%) while IG, which opened wider at 107.75bps, outperforms HY credits. IG11 and XOver11 are +4.5bps and +21.5bps respectively while ITRX11 is +5bps to 90.5bps.
Dispersion rose +6.3bps 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.
70% of IG credits are shifting by more than 3bps and 68% of the CDX universe are also shifting significantly (more than the 5 day average of 46%). The number of names wider than the index decreased by 1 to 38 as the day's range rose to 7.12bps (one-week average 5.52bps), between low bid at 106.88 and high offer at 114 and higher beta credits (6.87%) outperformed lower beta credits (7.81%).
In IG, wideners outpaced tighteners by around 14-to-1, with 115 credits notably wider. By sector, CONS saw 95% names wider, ENRGs 94% names wider, FINLs 76% names wider, INDUs 93% names wider, and TMTs 100% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 91.25bps and the latter at 84.94bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 177.28bps from 160.82bps, and remains above the short-term average of 162.71bps, with the HY/XOver ratio rising to 1.29x, above its 5-day mean of 1.27x. The IG-Main spread decompressed to 23bps from 20.75bps, and remains above the short-term average of 20.82bps, with the IG/Main ratio rising to 1.25x, above its 5-day mean of 1.23x.
In the US, non-financials outperformed financials as IG ExFINLs are wider by 5.6bps to 84.9bps, with only 4 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 10.35bps to 116.85bps, with Brokers (worst) wider by 15.38bps to 142.7bps, Finance names (best) wider by 26.85bps to 907.1bps, and Banks wider by 15.32bps to 156.12bps. Monolines are trading wider on average by 270.82bps (5.09%) to 3490.74bps.
In IG, FINLs (which excludes the majors) outperformed non-FINLs (3.87% wider to 7.08% wider respectively), with the former (IG FINLs) wider by 10.4bps to 280.1bps, with 4 of the 21 names tighter. The IG CDS market (as per CDX) is 29.2bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (84.34bps), with the bond ETFs outperforming the IG CDS market by around 4.13bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 5bps to 91.25bps (with ITRX FINLs -trading sideways- weaker by 5 to 87.5bps) and is currently trading at the wides of the week's range at 80.39%, between 92.47 to 86.25bps, and is trading sideways. Main LoVOL (trend tighter) is currently trading in the middle of the week's range at 49.79%, between 69.16 to 62.29bps. ExHVOL underperformed LoVOL as the differential decompressed to 4.37bps from 1.72bps, but remains above the short-term average of -4.02bps. The Main exFINLS to IG ExHVOL differential compressed to 21.17bps from 22.24bps, but remains below the short-term average of 28.02bps.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes:
CDR LQD 50 NAIG091 +8.09bps to 128.9 (49 wider - 1 tighter <> 14 steeper - 34 flatter).
CDX12 IG +7bps to 113.25 ($-0.29 to $99.45) (FV +6.58bps to 116.33) (117 wider - 6 tighter <> 27 steeper - 96 flatter) - No Trend.
CDX12 HVOL +9bps to 249 (FV +14.5bps to 301.06) (28 wider - 1 tighter <> 5 steeper - 25 flatter) - Trend Tighter.
CDX12 ExHVOL +6.37bps to 70.38 (FV +4.24bps to 64.13) (89 wider - 6 tighter <> 73 steeper - 22 flatter).
CDX11 XO +7.5bps to 290 (FV +9.77bps to 313.94) (31 wider - 2 tighter <> 8 steeper - 26 flatter) - No Trend.
CDX12 HY (30% recovery) Px $-1.25 to $89.88 / +38bps to 783.8 (FV +13.28bps to 696.27) (80 wider - 10 tighter <> 16 steeper - 76 flatter) - Trend Wider.
LCDX12 (65% recovery) Px $-0.6 to $93.05 / +21.17bps to 646.35 - Trend Tighter.
MCDX12 +1.5bps to 143bps. - Trend Tighter.
CDR Counterparty Risk Index rose 9.35bps (8.78%) to 115.85bps (14 wider - 0 tighter).
CDR Government Risk Index rose 2.08bps (5.1%) to 42.93bps..
DXY weakened 0.15% to 79.14.
Oil fell $1.23 to $69.37.
Gold fell $0.3 to $946.
VIX increased 1pts to 25.99%.
10Y US Treasury yields fell 10.6bps to 3.67%.
S&P500 Futures lost 1.45% to 992.9.
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IG12 saw its largest close-to-close widening since 6/16 and largest percentage close-to-close change since early March (in adjusted IG). This is very significant to us at it crosses almost the entire range of the last two weeks (with IG12 at its widest close since 7/29) and definitely breaks the short-term momentum players.
ExHVOL seems like a great short from here (talking my book) for a cheap long vol play...also looking at HY-IG vs XOver-Main (differential between the two differentials is around 150bps and has a lot more upside than downside for those looking for a cheap way to play spread widening). The jumps in CRI and GRI (financial and sovereign risk respectively) is notable with the latter most interesting as 'systemic' risk starts being discussed by VIXens.
As far as VIX is concerned, take a look at Implied Correlation today and the put-call for stocks vs put-call for indices...hhmm - interesting...also look at SPY vol skews - not so bullish as VIX might suggest...
Credit is super-well bid still, but the second we look like we are in for a serious retreat, it's not going to be pretty. Starting to look overbought to me.
Here ya go, proof that running AIG is a lot tougher than it sounds. On the job 1 day and the CEO is on vacation
http://www.bloomberg.com/apps/news?pid=20601109&sid=azMHBdRR5d8Y
you want me to pay him a visit and go trough some important stuff while hes here .. just kidding ...
TD, the bond market genius and Fed apologist is flat to negative for the day.
http://acrossthecurve.com/?p=7766
But unlike CR at least he mentioned his trade the day and time it happened. So that's slightly better in transparency perspective.
I guess John is bearish on bonds.
the Bear Mountain HF keeps advising to short the stock market,
esp XLF, IYR, EEM, IWM
http://stockcharts.com/h-sc/ui?s=$NYMO&p=D&b=3&g=0&id=p76700664954#
http://stockcharts.com/h-sc/ui?s=$NAMO&p=D&b=3&g=0&id=p76700664954#
Can some one suggest me short only ETF to play this down turn .
Use the bearish 3x Direxion shares listed at http://seekingalpha.com/article/104718-triple-leverage-etfs-should-be-re...
I did well on FAZ, BGZ, and TZA today, but my technicals are undecided as to whether this is the start of a downtrend and are now telling me to sell FAZ and buy FAS.
Just be warned that you will lose your shirt if it turns out to be a bull instead of a bear, or if you hold them too long.
Standard disclaimer: as a general rule, never hold a leveraged ETF more than 5-10 days, and DEFINITELY never hold a leveraged ETF more than a month. They are short-term trading tools and aren't good long-term investments.
33295...good thoughts by missing link. i've played faz/fas (financial sector) and bgz/bgu (broad market) quite a bit. they're direxion funds and you should go to the site and read everything.
missing...sold faz today after picking up 1.70 from last thursday buy. still holding bgz which i have been building since 966 and 966.
Not to commit blasphemy, but the new 3x RE ETFs have not yet shown slippage. In fact, being on the long side on either so far:
http://finance.yahoo.com/echarts?s=drn#chart2:symbol=drn;range=3m;compar...
Lot of guys suggested that, these leverage short onlY
ETF's are good for day trading. I am looking for plain
ETF to take positional trade. I do not think so they
allow trading in 401k.
Is the Fed Preparing to Ramp Up Its Market Intervention?
I would like Ben Bernanke to address for all of us where it states in the Federal Reserve Act that the Fed's role is to build a large staff traders to trade along side Wall Street and the general public. What is the purpose of this operation? What funds are being used to provide capital for this massive trading operation? Is the Fed printing money to fund this?
http://truthingold.blogspot.com/2009/08/is-fed-preparing-to-ramp-up-its-...
FRE & FNM are working on getting their houses in order. A few more high profile suicides and everything should be OK. Future whistle blowers within the organizations will get the message loud and clear.
Whats going in the Fx Ivols? JPY crosses looked like they blew off friday, added short there. GBP looks like hell (rightfully). RMB futs "seemingly" odd over the last few weeks. I put a high likelyhood of a shock in FX these days.
Like its been said here before Sov CDS ain't right.
Credit is super-well bid still, but the second we look like we are in for a serious retreat, it's not going to be pretty. Starting to look overbought to me.