Daily Credit Summary: December 1 - Surface Tension
Commentary compliments of www.creditresearch.com
Spreads were tighter in the US today with HY outperforming IG as the dollar fell overnight and early macro data appeared less than terrible (though some underlying indices showed weak outlooks). HY skews have narrowed significantly in the last couple of days (with intrinsics underperforming) and as we discuss in detail below, today's moves take indices back to unch from 11/25 but scratching the surface shows some clear signals of change.
Across the broad credit universe, tighteners dramatically outpaced wideners on the day and while spreads rallied (HY outperforming IG at the index level), in single-names we saw the up-in-quality trade continue with BBB- and above notably outperforming the BB and below rated names. All sectors were tighter on the day but Advertising, Builders, and Construction machinery were the laggards (along with Transports) while Gaming, Autos (sales seemed better than expected in most cases), Lodging, and Banks were the leaders.
In IG, tighteners outpaced wideners by around 10-to-1. By sector, CONS saw 0% names wider, ENRGs 0% names wider, FINLs 0% names wider, INDUs 0% names wider, and TMTs 4% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG13 exFINLs) with the former trading at 84.94bps and the latter at 93.73bps.
From the 11/25 close, indices are basically unch but things are different in single-names. Somewhat interestingly for those drinking from the gold cup, the dollar is actually stronger than Wednesday's close but oil and gold are also higher in price. So while the risk asset indices look pretty close to unchanged (helping the case for strategists calling Dubai a blip and not a contagious event eh hem!), there are some notable differences. European spreads are wider with XOver notably underperforming, HY intrinsics are wider from the 11/25 close and the HY skew has narrowed a bit, VIX is higher, new issue concessions are dropping in IG names and in crossover names rising (and in fact some deals are actually failing - MF Global).
There is a notable theme since the Wednesday close that points to rising risk aversion and that is the considerable outperformance of the belly of the quality curve - AA and above and B and below have significantly underperformed while the A-to-BB region is pretty much unch (with slight outperformance of IG over HY names). While the headline indices look unch (and wideners and tighteners are almost perfectly balanced), there has been turmoil under the covers with a notable up-in-quality trade and at the same time systemic risk repricing in the 'best' quality credits.
EM sovereign risk is 15-20bps wider than at 11/25 close implying a rise in systemic risk (that has not been dismissed), Builders are measurably wider from the 11/25 close. Since Wednesday, ITRX Sen-Subs have underperformed SovX (as we positioned for) and it seems today's jump tighter in SovX is a little excessive given intrinsics.
Today's biggest absolute movers in IG were AT&T Mobility LLC (+1.5bps), Chubb Corp. (+0.25bps), and Du Pont E.I. de Nemours & Co (0bps) in the wideners, and Xerox Corp. (-22.5bps), American International Group, Inc. (-22.07bps), and DirecTV Holdings LLC (-16bps) in the tighteners. Today's biggest percentage movers in IG were AT&T Mobility LLC (+3.53%), Chubb Corp. (+0.51%), and Du Pont E.I. de Nemours & Co (0%) in the wideners, and Xerox Corp. (-12.86%), DirecTV Holdings LLC (-11.03%), and Hewlett-Packard Company (-9.23%) in the tighteners.
In the names of the HY index, today's biggest percentage movers were K Hovnanian Enterprises, Inc. (+2.94%), Energy Future Holdings Corp. (+2.33%), and Beazer Homes USA Inc (+1.7%) in the wideners, and Radian Group Inc (-12.09%), Forest Oil Corp. (-7.82%), and Nova Chemicals Corp. (-6.4%) in the tighteners. The largest absolute movers in HY were Energy Future Holdings Corp. (+41.1bps), K Hovnanian Enterprises, Inc. (+30.61bps), and Harrah's Operating Co Inc (+20.22bps) in the wideners, and Radian Group Inc (-225.83bps), Residential Capital, LLC (-92.32bps), and Clear Channel Communications Inc (-86.21bps) in the tighteners.
Today's biggest absolute movers in Main were European Aeronautic Defence and Space Company EADS N.V. (+1.5bps), JTI (UK) Finance PLC (+1bps), and RWE AG (+0.75bps) in the wideners, and Volvo AB (-11bps), Vivendi SA (-9.5bps), and ArcelorMittal (-9.25bps) in the tighteners. Today's biggest percentage movers in Main were JTI (UK) Finance PLC (+3.23%), European Aeronautic Defence and Space Company EADS N.V. (+1.95%), and RWE AG (+1.59%) in the wideners, and Vivendi SA (-8.58%), Aviva Plc (-7.82%), and Hellenic Telecommunications Organization SA (-7.8%) in the tighteners.
In the names of the XOver index, today's biggest percentage movers were Gecina SA (+3.51%), CIR S.p.A. (+2%), and BCM Ireland Finance Ltd (+0.53%) in the wideners, and NXP b.v. (-19.23%), Seat Pagine Gialle SpA (-14.86%), and M-real Oyj (-9.17%) in the tighteners. The largest absolute movers in XOver were Gecina SA (+10bps), CIR S.p.A. (+7.5bps), and BCM Ireland Finance Ltd (+6.29bps) in the wideners, and NXP b.v. (-421.52bps), Seat Pagine Gialle SpA (-339.41bps), and Ineos Group Holdings plc (-155.35bps) in the tighteners.
CDR LQD 50 NAIG -4.28bps to 92.01 (1 wider - 47 tighter <> 28 steeper - 22 flatter).
CDX13 IG -3.44bps to 102.56 ($0.15 to $99.89) (FV -3.76bps to 107.75) (1 wider - 123 tighter <> 69 steeper - 55 flatter) - No Trend.
CDX13 HVOL 0bps to 190 (FV -6.57bps to 185.72) (0 wider - 30 tighter <> 17 steeper - 12 flatter) - Trend Wider.
CDX13 ExHVOL -4.53bps to 74.95 (FV -2.9bps to 83.81) (1 wider - 94 tighter <> 43 steeper - 52 flatter).
CDX13 HY (30% recovery) Px $+0.88 to $93.875 / -24.7bps to 662.6 (FV -14.96bps to 613.92) (7 wider - 87 tighter <> 73 steeper - 23 flatter) - Trend Tighter.
ITRX12 Main -4.81bps to 84.25 (FV -2.31bps to 83.86) (6 wider - 116 tighter <> 86 steeper - 38 flatter) - No Trend
ITRX12 HiVol -8.5bps to 132.75 (FV -4.34bps to 131.53) (0 wider - 30 tighter <> 22 steeper - 8 flatter) - No Trend
ITRX12 LoVol -3.64bps to 68.93 (FV -1.68bps to 69.11) (6 wider - 89 tighter <> 31 steeper - 64 flatter) - Sideways Trading
ITRX12 XOver -23bps to 522 (FV -23.5bps to 531.92) (3 wider - 40 tighter <> 32 steeper - 13 flatter) - Trend Wider
LCDX12 (65% recovery) Px $+0.4 to $99.6 / -12.78bps to 558.14 - No Trend.
MCDX12 -24bps to 141bps. - Trend Tighter.
CDR Counterparty Risk Index fell 4.27bps (-4.07%) to 100.83bps (0 wider - 14 tighter).
CDR Government Risk Index fell 1.98bps (-3.38%) to 56.64bps..
DXY weakened 0.63% to 74.41.
Oil rose $0.87 to $78.15.
Gold rose $18.3 to $1197.9.
VIX fell 2.59pts to 21.9%.
10Y US Treasury yields rose 8.5bps to 3.29%.
S&P500 Futures gained 1.21% to 1108.