Daily Credit Summary: August 5 - Tailed Off
Spreads were mixed in the US with all but ExHVOL tighter (but spread moves were very marginal today with extremely narrow ranges in IG and HY once again). Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew (notable since the skew is at contract tights and intrinsics are hovering at critical support levels from last fall), HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew (as we heard a HY12 arb list doing the rounds).
The names having the largest impact on IG are CIT Group Inc (-312.71bps -> crazy short squeeze technicals from the equity market) pushing IG 1.21bps tighter, and FirstEnergy Corp (+9bps) adding 0.07bps to IG. HVOL is more sensitive with CIT Group Inc pushing it 5.36bps tighter, and Alcoa Inc. contributing 0.18bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Devon Energy Corporation (-5.5bps) pushing the index 0.06bps tighter, and FirstEnergy Corp (+9bps) adding 0.09bps to ExHVOL.
The price of investment grade credit rose 0.04% to around 99.5% of par (we see IG12 at 133bps vs current 116bps intrinsics as a model-based fair-value), while the price of high yield credits rose 0.03% to around 90.78% of par (HY just underperformed IG today as early on we saw patterns of HY-IG decompression trades coming in as LCDX-HY continued to decompress). ABX market prices are lower by 0.02% of par or in absolute terms, 0.72%. Broadly speaking, CMBX market prices are lower by 0.28% of par or in absolute terms, 0.07%. Volatility (VIX) is up 0.01pts to 24.9%, with 10Y TSY selling off (yield rising) 7.6bps to 3.76% and the 2s10s curve steepened by 6.8bps, as the cost of protection on US Treasuries rose 0.3bps to 26bps. 2Y swap spreads widened 3.7bps to 44.06bps, as the TED Spread tightened by 0.1bps to 0.29% and Libor-OIS improved 0.4bps to 26.7bps.
The Dollar weakened with DXY falling 0.27% to 77.552, Oil rising $0.38 to $71.8 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.78% today (a 0.26% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $2.4 to $964.55 as the S&P is down (1000 -0.47%) underperforming IG credits (112bps 0.04%) while IG, which opened tighter at 112.5bps, outperforms HY credits. IG11 and XOver11 are 0bps and +3bps respectively while ITRX11 is +0.75bps to 91.5bps.
Dispersion fell -28.1bps 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 increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.
Only 26% of IG credits are shifting by more than 3bps and 40% of the CDX universe are also shifting significantly (less than the 5 day average of 49%). The number of names wider than the index stayed at 38 as the day's range fell to 3.5bps (one-week average 4.7bps), between low bid at 110.5 and high offer at 114 and higher beta credits (-1.0%) underperformed lower beta credits (-1.1%).
In IG, wideners outpaced tighteners by around 5-to-4, with 43 credits notably wider. By sector, CONS saw 27% names wider, ENRGs 38% names wider, FINLs 14% names wider, INDUs 43% names wider, and TMTs 52% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 92.41bps and the latter at 81.94bps.
Cross Market, we are seeing the HY-XOver spread compressing to 158.29bps from 162.15bps, but remains above the short-term average of 157.1bps, with the HY/XOver ratio falling to 1.26x, above its 5-day mean of 1.26x. The IG-Main spread compressed to 20.5bps from 22.25bps, and remains below the short-term average of 22.22bps, with the IG/Main ratio falling to 1.22x, below its 5-day mean of 1.25x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 0.3bps to 81.9bps, with 48 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 1.67bps to 109.93bps, with Banks (worst) wider by 1.5bps to 149.54bps, Finance names (best) tighter by 51.85bps to 940.5bps, and Brokers tighter by 0.81bps to 128.14bps. Monolines are trading tighter on average by -89.49bps (0.68%) to 4294.29bps.
In IG, FINLs (including AIG and CIT!) outperformed non-FINLs (5.55% tighter to 0.32% tighter respectively), with the former (IG FINLs) tighter by 17.6bps to 300.2bps, with 14 of the 21 names tighter. The IG CDS market (as per CDX) is 34.8bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (77.21bps), with the bond ETFs outperforming the IG CDS market by around 7.08bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 0.1bps to 92.41bps (with ITRX FINLs -trending wider- weaker by 3.38 to 87.88bps) and is currently trading in the middle of the week's range at 37.42%, between 96.44 to 90bps, and is trading sideways. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 99.98%, between 69.08 to 63.18bps. ExHVOL outperformed LoVOL as the differential compressed to -10.13bps from -9.28bps, but remains below the short-term average of -8.17bps. The Main exFINLS to IG ExHVOL differential compressed to 33.46bps from 33.63bps, and remains below the short-term average of 33.51bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 -2.18bps to 128.99 (18 wider - 24 tighter <> 26 steeper - 23 flatter).
CDX12 IG -1bps to 112 ($0.04 to $99.5) (FV -2.96bps to 116.63) (44 wider - 62 tighter <> 61 steeper - 64 flatter) - No Trend.
CDX12 HVOL -5bps to 280 (FV -13.21bps to 316.3) (8 wider - 18 tighter <> 18 steeper - 12 flatter) - No Trend.
CDX12 ExHVOL +0.26bps to 58.95 (FV +0.04bps to 60.7) (36 wider - 59 tighter <> 52 steeper - 43 flatter).
CDX11 XO -0.8bps to 288.9 (FV -0.27bps to 312.47) (15 wider - 13 tighter <> 13 steeper - 20 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $0 to $90.75 / 0bps to 757.6 (FV +1.74bps to 697.49) (52 wider - 30 tighter <> 37 steeper - 54 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.19 to $92.25 / -6.29bps to 479.17 - Trend Tighter.
MCDX12 +2.5bps to 164.5bps. - Trend Wider.
CDR Counterparty Risk Index rose 1.67bps (1.54%) to 109.93bps (12 wider - 2 tighter).
CDR Government Risk Index rose 2.01bps (5.2%) to 40.71bps..
DXY weakened 0.27% to 77.55.
Oil rose $0.38 to $71.8.
Gold fell $2.4 to $964.55.
VIX increased 0.01pts to 24.9%.
10Y US Treasury yields rose 7.4bps to 3.76%.
S&P500 Futures lost 0.47% to 1000.