Daily Credit Summary: December 10 - Like Clockwork

Spreads were tighter in the US today as the ten-day swing cycle in IG has once again reached channel tights. Overnight outperformance on a weakening dollar was stymied by a weak jobless claims number that stalled the performance in the US after a decent open. Breadth was very positive though in credit as roll thoughts continue to weigh (positively) on IG names with tighteners outpacing wideners by almost 6-to-1.

IG and HY closed near their tights of the day with IG at its tightest close since 10/14 (and notably 1.6 stdevs rich). HY 13 was at its highest close since inception, but HY13 underperformed the off-the-runs though still managed to stay above 600bps intraday having rallied 3pts in the last 10 days as HY13 skews have compressed quickly. IG has also stuck to this almost metronome-like 10-day tight-to-wide-to-tight cycle in the last 2-3 months and today saw it back to the channel tights.

Perhaps coincidentally, we have seen 10 days in a row in IG where we have rallied from open-to-close, this is the same number of days (and swing size) that we saw in October also before leaking back wider. With skews so narrow in IG and HY, we suspect that we have seen early roll technicals impacting the index and that even with a stop at the 90bps level, a short-entry here in IG13 to cross back up to the 110-115bps channel wide is worthwhile.

Today appeared like a rest day as we saw all the names that have widened recently rally comfortably with high beta names handily outperforming low beta. In IG it was the tail names which suggests either/both correlation desks tidying up on IG9 action (as the rolls compress) and single-name shorts being unwound into year-end (as the index underperformance today perhaps signals that more clearly).

In single-names we saw index curve flatten in the 5s10s segment perhaps in line with this steepening of TSYs.

Sovereign risk compressed today for the first time in 6 days led by the worst names of the last 6 days (no surprise there). SovX intrinsics remain above 70bps (index remains above 65bps) and we note that most of our low cost long vol trades decompressed today (Sen-Sub vs SovX for example) even as ITRX FINL Subs dropped marginally below 150bps. Munis were wider (MCDX that is).

Across the single-name universe, we saw this lift of sovereign risk enable the up-in-quality trade to extend and the performance was heavily skewed to the best rated entities today. Many of the riskier HY index members (and old LBO names) were notably wider today (remember that intrinsics is still rich to index) as LIZ, RESCAP Harrah's, FDC, Realogy, and Frontier were all the worst performers as CCU managed decent rally as did YRCW on hopes of the tender extension.

All major sectors were tighter today but Basic Materials, Tech, and Utilities were worst while Media, Leisure, and Finance outperformed. Gaming, Publishers, Broadcasters, Aerospace & Defense, and Insurance were the best industries and held steady all day. The laggards were also pretty consistent all day with IT services, Pipelines, Restaurants, Cable, and Pharma joining Refining & Marketing and Chemicals at the worst end (though on average they all rallied a little). REITs underperformed in Financials and we note that US financials outperformed EUR financials today (and EUR FINLs underperformed non-FINLs on the day).

Today's biggest absolute movers in IG were Xerox Corp. (+3.5bps), Home Depot Inc. (+3.25bps), and Lowe`s Companies, Inc. (+3.1bps) in the wideners, and International Lease Finance Corp. (-49.4bps), American International Group, Inc. (-27.34bps), and Hartford Financial Services Group (-18.75bps) in the tighteners. Today's biggest percentage movers in IG were Home Depot Inc. (+5.14%), Lowe`s Companies, Inc. (+4.97%), and Time Warner Inc. (+4.04%) in the wideners, and Conagra Foods Inc (-12.12%), Boeing Capital Corp (-10.4%), and Hartford Financial Services Group (-9.38%) in the tighteners.

In the names of the HY index, today's biggest percentage movers were Residential Capital, LLC (+6.92%), Liz Claiborne Inc. (+4.45%), and First Data Corp (+2.87%) in the wideners, and Boyd Gaming Corporation (-9.58%), Clear Channel Communications Inc (-9.39%), and McClatchy Co./The (-5.03%) in the tighteners. The largest absolute movers in HY were Residential Capital, LLC (+145.24bps), Liz Claiborne Inc. (+31.9bps), and Harrah's Operating Co Inc (+28.9bps) in the wideners, and Clear Channel Communications Inc (-162.89bps), Boyd Gaming Corporation (-102.81bps), and McClatchy Co./The (-78.01bps) in the tighteners.

Today's biggest absolute movers in Main were Assicurazioni Generali SpA (+6.5bps), Allianz SE (+6bps), and Zurich Insurance Company (+4.75bps) in the wideners, and Hellenic Telecommunications Organization SA (-4.75bps), Accor SA (-2.36bps), and Marks & Spencer PLC (-2bps) in the tighteners. Today's biggest percentage movers in Main were Assicurazioni Generali SpA (+11.02%), Allianz SE (+10%), and Portugal Telecom International Finance B.V. (+6.09%) in the wideners, and Hellenic Telecommunications Organization SA (-5%), Unilever N.V. (-3.52%), and Henkel KGaA (-2.18%) in the tighteners.

In the names of the XOver index, today's biggest percentage movers were Wendel SA (+7.04%), UPM-Kymmene Oyj (+3.13%), and Nordic Telephone Company Holding ApS (+2.13%) in the wideners, and Seat Pagine Gialle SpA (-7.52%), NXP b.v. (-7.14%), and M-real Oyj (-4.11%) in the tighteners. The largest absolute movers in XOver were Wendel SA (+25bps), BCM Ireland Finance Ltd (+21.08bps), and Codere Finance SA (+17.55bps) in the wideners, and Seat Pagine Gialle SpA (-147.34bps), NXP b.v. (-123.69bps), and M-real Oyj (-55.03bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -1.43bps (or -1.53%) to 91.73bps. Royal Bank of Scotland Group Plc (4bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Royal Bank of Scotland Group Plc (2.89%) is the worst (relative) performer. Citigroup Inc (-10bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Morgan Stanley (-6%) is the best (relative) performer.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes

CDR LQD 50 NAIG -1.55bps to 82.24 (9 wider - 32 tighter <> 19 steeper - 30 flatter).
CDX13 IG -1.75bps to 95.75 ($0.08 to $100.18) (FV -2.26bps to 95.71) (19 wider - 90 tighter <> 62 steeper - 62 flatter) - No Trend.
CDX13 HVOL -2bps to 170 (FV -4.21bps to 166.26) (6 wider - 19 tighter <> 13 steeper - 16 flatter) - Trend Tighter.
CDX13 ExHVOL -1.67bps to 72.3 (FV -1.66bps to 73.97) (13 wider - 82 tighter <> 46 steeper - 49 flatter).
CDX13 HY (30% recovery) Px $+0.31 to $95.6875 / -8.4bps to 613.2 (FV -5.5bps to 579.96) (18 wider - 67 tighter <> 57 steeper - 40 flatter) - Trend Tighter.
ITRX12 Main -2.25bps to 82.5 (FV +0.61bps to 80.17) (78 wider - 37 tighter <> 64 steeper - 60 flatter) - No Trend
ITRX12 HiVol -1.75bps to 122.25 (FV +0.06bps to 120.68) (14 wider - 14 tighter <> 16 steeper - 14 flatter) - No Trend
ITRX12 LoVol -2.41bps to 69.95 (FV +0.78bps to 67.59) (64 wider - 31 tighter <> 47 steeper - 48 flatter) - Sideways Trading
ITRX12 XOver -14bps to 490 (FV -2.67bps to 510.37) (25 wider - 18 tighter <> 16 steeper - 29 flatter) - No Trend
LCDX12 (65% recovery) Px $+0.4 to $100.55 / -12.3bps to 525.62 - Trend Tighter.
MCDX12 +3.33bps to 149bps. - Trend Wider.
CDR Counterparty Risk Index fell 1.43bps (-1.53%) to 91.73bps (8 wider - 6 tighter).
CDR Government Risk Index fell 1.2bps (-1.96%) to 60.08bps..
DXY weakened 0.06% to 75.99.
Oil fell $0.16 to $70.51.
Gold rose $3.1 to $1131.7.
VIX fell 0.34pts to 22.32%.
10Y US Treasury yields rose 6.2bps to 3.5%.
S&P500 Futures gained 0.58% to 1102.

Comments

[Dr Horace Manure]

No sarcasm, no humor.  This was not posted by the real Tyler Durden.

[Tyler Durden]

"Commentary compliments of www.creditresearch.com"

[Dr Horace Manure]

I'm sorry Sir, I missed that.  Please accept my apology.

[Anonymous]

thanks much for posting these credit updates. I'm not a finance professional but like keeping up to date on fixed income performance, and you don't hear much about it elsewhere despite the massive size of the market compared to equities...

[Chopshop]

Excellent & Informative.