Daily Credit Summary: December 8 - Greece'd Darkening
Commentary compliments of www.creditresearch.com
Spreads ended the day mixed in the US today with very low intraday ranges and only marginal moves as HY just outperformed IG. Breadth was modestly negative as TMT and CONSumer names underperformed. We note that credit has outperformed equity in the last couple of days as the dollar has sprung higher and perhaps this is another of the coal-mine's canaries that risk-aversion (think steam behind the run) is hitting stocks.
IG and HY both had inside range days today with very narrow ranges as HY managed to creep into the positive by the close as both IG and HY ended at their tights of the day while equities closed near their lows (somewhat supporting our perspective of the shift up in the capital structure into year-end uncertainty). The up-in-quality trade remains in place in credit land single-names but we do note that at the very highest credit quality (or ratings) we are seeing underperformance as sovereign risk drives systemic weakness into these ultra-tight names.
Publishers, Airlines (notable intraday swing tighter), and Apparel industries outperformed today as Consumer Finance and Wired Telco also improved. Autos were the worst relative performing industry today and slipped from a medium start. Builders, Monolines, Advertising and Software were all weak all day. Retailing slid from a decent start to end pretty weak. At the sector level, Capital Goods, Basic Materials, and both Cyclical and non-Cyclical consumer names were laggards today as Media, Energy, and Telecoms outperformed.
Some Sovereign Thoughts
Overnight saw more headlines around Dubai World's entities (especially Nakheel's weakness down almost 8pts today! and Istithmar losing the 'W' Hotel) and US and UK sovereigns took a bit of a blow on a weak statement by Moody's on pushing AAA limits (lol - what are those limits?). Greece staggered further and as my wife would say - "I think the told-you-so dance might have to appear" - as it appears that sovereign risk (especially the Dubai shenanigans) are not just a 'blip' as so many long-only talking heads would have us believe. Dubai (the sovereign) jumped 55bps back to 555bps (120bps wider in last 4 days).
Greece jumped 20bps more today, taking out the 11/26 wides and backing it up to March 14th wides, having moved 40bps in the last 4 days. Ireland got dragged wider also (not helped midday by Lenihan's comments on savings and outlook) as SovX intrinsics moved 3bps wider to 68bps and skew finally compressed as SovX moved 6bps wider (as we see Ireland and Greece now account for almost 36% of SovX risk). European FINLs Sen-Subs decompressed modestly today as FINLs widened in harmony with the systemic sovereign risk. Notably, SovX underperformed ITRX Ex-FINLs, ITRX LoVOL, and Sen-Sub today.
EM sovereigns once again outperformed SovX and the developed sovereigns (confirming our recent concerns over the BRICs vs PIIGS convergence) as EM12 intrinsics popped back above 300bps but the index remained 25-30bps rich. We suspect some are looking at SovX-EM12 compression trades but given the relative rich/cheapness to intrinsics in both indices, we suggest decompression will prove to be right in the medium-term, even if we see a spike wider in SovX in the short-term. Global sovereign risk rose around 2.5-3bps (around 2%) on a DV01-weighted basis.
Across all non-corporates, we saw CALI and FL widen notably today (and IL get its downgrade but no action in CDS as it is very illiquid), Israel outperformed Dubai and Qatar (the laggards) in the Mid-East, Venezuela and Chile outperformed Argentina in Latam, and in Europe Norway was pretty much the only name tighter as Greece, Iceland, Hungary, Estonia, and Lithuania were weak. Asia saw Japan rally a smidge, but Hong Kong was best on the day as Vietnam and Philippines underperformed.
Today's biggest absolute movers in IG were Nordstrom Inc. (+6bps), Southwest Airlines Co. (+5bps), and Kohl's Corporation (+4bps) in the wideners, and American International Group, Inc. (-28.74bps), International Lease Finance Corp. (-17.36bps), and UnitedHealth Group Inc (-7.5bps) in the tighteners. Today's biggest percentage movers in IG were Nordstrom Inc. (+6.49%), McKesson Corporation (+4.94%), and Kohl's Corporation (+4.79%) in the wideners, and General Mills Inc. (-8.25%), Sara Lee Corp. (-4.72%), and Conagra Foods Inc (-4.67%) in the tighteners.
In the names of the HY index, today's biggest percentage movers were American Axle & Manufacturing Inc (+4.75%), RadioShack Corp (+4.26%), and Macy's, Inc. (+2.54%) in the wideners, and Level 3 Communications Inc. (-6.97%), McClatchy Co./The (-6.74%), and Liz Claiborne Inc. (-4.16%) in the tighteners. The largest absolute movers in HY were Energy Future Holdings Corp. (+45.49bps), AMR Corp (+41.87bps), and American Axle & Manufacturing Inc (+36.43bps) in the wideners, and McClatchy Co./The (-120.93bps), Level 3 Communications Inc. (-111.1bps), and Boyd Gaming Corporation (-32.52bps) in the tighteners.
The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -1.23bps (or -1.28%) to 94.82bps. BNP Paribas (0.87bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst BNP Paribas (1.44%) is the worst (relative) performer. Citigroup Inc (-7.5bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Citigroup Inc (-3.7%) is the best (relative) performer.
Today's biggest absolute movers in Main were Hellenic Telecommunications Organization SA (+4.5bps), Telenor ASA (+3.25bps), and Aegon NV (+3bps) in the wideners, and Cadbury Holdings Limited (-7bps), ArcelorMittal (-6.5bps), and Metro AG (-4.15bps) in the tighteners. Today's biggest percentage movers in Main were Hellenic Telecommunications Organization SA (+5.92%), Telenor ASA (+4.38%), and TNT N.V. (+4.2%) in the wideners, and Cadbury Holdings Limited (-8.81%), Experian Finance plc (-6.41%), and Koninklijke Philips Electronics NV (-5.15%) in the tighteners.
In the names of the XOver index, today's biggest percentage movers were International Power Plc (+9.61%), Wind Acquisition Finance S.p.A. (+7.55%), and BCM Ireland Finance Ltd (+6.45%) in the wideners, and NXP b.v. (-7.86%), M-real Oyj (-7.85%), and Seat Pagine Gialle SpA (-6.72%) in the tighteners. The largest absolute movers in XOver were Ineos Group Holdings plc (+81.92bps), BCM Ireland Finance Ltd (+67.62bps), and Wind Acquisition Finance S.p.A. (+40bps) in the wideners, and NXP b.v. (-136.57bps), Seat Pagine Gialle SpA (-125.79bps), and M-real Oyj (-105.48bps) in the tighteners.
CDR LQD 50 NAIG +0.04bps to 85.91 (21 wider - 16 tighter <> 30 steeper - 19 flatter).
CDX13 IG +0.5bps to 97.5 ($-0.02 to $100.11) (FV -0.16bps to 100.44) (57 wider - 41 tighter <> 80 steeper - 42 flatter) - Trend Tighter.
CDX13 HVOL 0bps to 175 (FV -0.8bps to 173.82) (17 wider - 9 tighter <> 20 steeper - 10 flatter) - Trend Tighter.
CDX13 ExHVOL +0.66bps to 73.03 (FV +0.04bps to 77.85) (40 wider - 55 tighter <> 35 steeper - 60 flatter).
CDX13 HY (30% recovery) Px $+0.03 to $95.375 / -1bps to 621.5 (FV -0.6bps to 590.73) (43 wider - 35 tighter <> 45 steeper - 47 flatter) - Trend Tighter.
ITRX12 Main +0.5bps to 81.25 (FV -0.64bps to 78.44) (31 wider - 75 tighter <> 48 steeper - 76 flatter) - No Trend
ITRX12 HiVol -1bps to 121 (FV -1.61bps to 119.61) (5 wider - 24 tighter <> 10 steeper - 19 flatter) - Trend Tighter
ITRX12 LoVol +0.97bps to 68.7 (FV -0.34bps to 65.66) (26 wider - 69 tighter <> 57 steeper - 38 flatter) - Sideways Trading
ITRX12 XOver +3bps to 495.5 (FV -2.9bps to 502.84) (16 wider - 23 tighter <> 20 steeper - 24 flatter) - Trend Tighter
LCDX12 (65% recovery) Px $-0.17 to $100.15 / +5.25bps to 537.82 - Trend Tighter.
MCDX12 +3.5bps to 140bps. - No Trend.
CDR Counterparty Risk Index fell 1.23bps (-1.28%) to 94.82bps (5 wider - 9 tighter).
CDR Government Risk Index rose 2.57bps (4.63%) to 58bps..
DXY strengthened 0.59% to 76.21.
Oil fell $1.24 to $72.69.
Gold fell $28 to $1130.1.
VIX increased 1.59pts to 23.51%.
10Y US Treasury yields fell 4bps to 3.39%.
S&P500 Futures lost 1.22% to 1090.2.