Daily Credit Summary: February 1 - Volcker Off Risk On

Spreads were tighter in the US as all the indices improved (albeit marginally). IG trades 3.9bps wide (cheap) to its 50d moving average, which is a Z-Score of 0.4s.d. (and HY has now traded wide of its 50-day for 2 days). At 95bps, IG has closed tighter on 36 days in the last 280 trading days (JAN09). The last five days have seen IG flat to its 50d moving average.

Indices generally outperformed intrinsics with skews widening in general as IG's skew decompressed as the index beat intrinsics, HVOL outperformed but narrowed the skew, ExHVOL outperformed pushing the skew wider, HY outperformed but narrowed the skew.

A minuscule 4% of names in IG moved more than their historical vol would imply as higher vol names underperformed lower vol names by 0.4% to 0.34%. IG's vol is around 4.38% per 1 day period, which leaves 97 names higher vol and 28 lower vol than the index.

The names having the largest impact on IG are International Lease Finance Corp. (-16.98bps) pushing IG 0.12bps tighter, and Sempra Energy (+12.5bps) adding 0.1bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 0.49bps tighter, and Boston Properties L.P. contributing 0.2bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Wells Fargo & Company (-7bps) pushing the index 0.07bps tighter, and Sempra Energy (+12.5bps) adding 0.13bps to ExHVOL.

The price of investment grade credit rose 0.08% to around 100.21% of par, while the price of high yield credits rose 0.03% to around 96.97% of par. ABX market prices are higher (improving) by 0.04% of par or in absolute terms, 0.09%. Volatility (VIX) is down -1.77pts to 22.88%, with 10Y TSY selling off (yield rising) 7.4bps to 3.66% and the 2s10s curve steepened by 3.5bps, as the cost of protection on US Treasuries fell 1.75bps to 43.75bps. 2Y swap spreads tightened 0.4bps to 28.44bps, as the TED Spread tightened by 1.2bps to 0.17% and Libor-OIS improved 0.5bps to 10bps.

The Dollar weakened with DXY falling 0.31% to 79.216, Oil rising $1.93 to $74.82 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.3% today (a 2.34% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $25.25 to $1106.1 as the S&P rallies (1084.2 1.29%) outperforming IG credits (95bps 0.08%) while IG, which opened tighter at 96.25bps, outperforms HY credits. IG12 and XOver12 are -2bps and +6bps respectively while ITRX12 is +0.13bps to 82.88bps.

The majority of credit curves steepened as the vol term structure steepened with VIX/VIXV decreasing implying a more bearish/more volatile short-term outlook (normally indicative of short-term spread decompression expectations).

Dispersion fell -1.1bps 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 decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.

Only 13% of IG credits are shifting by more than 3bps and 36% of the CDX universe are also shifting significantly (more than the 5 day average of 35%). The number of names wider than the index increased by 1 to 45 as the day's range rose to 3.75bps (one-week average 4.95bps), between low bid at 93 and high offer at 96.75 and higher beta credits (0.02%) outperformed lower beta credits (0.75%).

In IG, wideners outpaced tighteners by around 2-to-1, with 54 credits wider. By sector, CONS saw 61% names wider, ENRGs 53% names wider, FINLs 30% names wider, INDUs 46% names wider, and TMTs 17% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG13 exFINLs) with the former trading at 80.54bps and the latter at 82.78bps.

Cross Market, we are seeing the HY-XOver spread compressing to 119.83bps from 126.69bps, and remains below the short-term average of 120.09bps, with the HY/XOver ratio falling to 1.26x, below its 5-day mean of 1.26x. The IG-Main spread compressed to 12.12bps from 14bps, and remains below the short-term average of 13.6bps, with the IG/Main ratio falling to 1.15x, below its 5-day mean of 1.17x. Among the HY names, we see higher risk names (>500bps) underperforming lower risk (<500bps) names.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 0.4bps to 82.8bps, with 35 of the 105 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 3.79bps to 105.58bps, with Finance names (worst) tighter by 3.18bps to 434.12bps, Brokers (best) tighter by 10.33bps to 132.83bps, and Banks tighter by 7.08bps to 117.42bps. Monolines are trading tighter on average by -26.86bps (0.79%) to 2928.94bps.

In IG, FINLs outperformed non-FINLs (0.51% tighter to 0.48% wider respectively), with the former (IG FINLs) tighter by 0.8bps to 163.6bps, with 8 of the 20 names tighter. The IG CDS market (as per CDX) is 15.8bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (79.18bps), with the bond ETFs underperforming the IG CDS market by around 1.61bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 0.12bps to 80.54bps (with ITRX FINLs -trending wider- weaker by 1.12 to 92.25bps) and is currently trading in the middle of the week's range at 57.93%, between 82.29 to 78.13bps, and is trading sideways. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 79.1%, between 72.83 to 66.34bps. ExHVOL outperformed LoVOL as the differential compressed to -1.11bps from 1.05bps, and remains below the short-term average of 0.66bps. The Main exFINLS to IG ExHVOL differential decompressed to 10.17bps from 8.62bps, and remains above the short-term average of 9.59bps.

The Emerging Market index is 2% less risky (5.4bps tighter) to 260bps. EM12 (Trend Wider) is currently trading in the middle of the week's range at 63.94%, between 265.5 to 250.3bps. The HY-EM spread decompressed to 318.81bps from 314.24bps, and remains above the short-term average of 315.05bps, with the HY/EM ratio rising to 2.23x, above its 5-day mean of 2.22x.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes
CDR LQD 50 NAIG -0.86bps to 87.03 (21 wider - 17 tighter <> 29 steeper - 18 flatter).
CDX13 IG -1.75bps to 95 ($0.08 to $100.21) (FV +0.16bps to 95.52) (51 wider - 45 tighter <> 69 steeper - 50 flatter) - No Trend.
CDX13 HVOL -2bps to 173 (FV +0.15bps to 170.13) (13 wider - 11 tighter <> 13 steeper - 17 flatter) - No Trend.
CDX13 ExHVOL -1.67bps to 70.37 (FV +0.16bps to 72.57) (38 wider - 57 tighter <> 39 steeper - 56 flatter).
CDX13 HY (30% recovery) Px $+0.04 to $96.98 / -1.1bps to 578.5 (FV +2.94bps to 548.23) (61 wider - 31 tighter <> 54 steeper - 45 flatter) - Trend Wider.
ITRX12 Main +0.13bps to 82.88 (FV +1bps to 85.62) (88 wider - 24 tighter <> 77 steeper - 46 flatter) - Trend Wider
ITRX12 HiVol -1bps to 119 (FV +2.19bps to 120.06) (25 wider - 3 tighter <> 24 steeper - 6 flatter) - No Trend
ITRX12 LoVol +0.49bps to 71.47 (FV +0.63bps to 74.9) (63 wider - 32 tighter <> 42 steeper - 53 flatter) - Trend Wider
ITRX12 XOver +6bps to 459 (FV +5.04bps to 480.13) (37 wider - 6 tighter <> 29 steeper - 16 flatter) - Trend Wider
LCDX12 (65% recovery) Px $-0.23 to $103.31 / +6.48bps to 466.49 - Trend Wider.
MCDX12 0bps to 170bps. - Trend Wider.
CDR Counterparty Risk Index fell 3.75bps (-3.43%) to 105.62bps (6 wider - 8 tighter).
CDR Government Risk Index rose 0.18bps (0.23%) to 77.82bps..
DXY weakened 0.31% to 79.22.
Oil rose $1.93 to $74.82.
Gold rose $25.25 to $1106.1.
VIX fell 1.79pts to 22.88%.
10Y US Treasury yields rose 7.2bps to 3.66%.
S&P500 Futures gained 1.29% to 1084.2.

Index Internals
Within the 240 name CDX Index Universe, sentiment is significantly bearish, with  120 (51%) wideners to 78 (33%) tighteners and 129 (54%) steepeners to 102 (43%) flatteners (1.5 wideners for every tightener). Among this universe, there are 7 credits with a bullish trend, and 14 with a bearish trend (based on the previous five days trading action).

The market's general sentiment is evident as we note that 78 credits are at the widest in their 5-day range currently, and 38 are at their tightest. Notably, from the 240 name index universe, there are 33 (~14%) credits that have inverted curves, with an average inversion of 38% of 5Y CDS.

Within the IG universe, dispersion overall has fallen -1.1bps to 91.2bps, as the wings of the distribution (10-90%) increased more than the centre (25-75%) of the distribution. The distribution shifted non-linearly as the 50th percentile increased the most (3bps /3.97%) to 78.5bps, and the 10th percentile increased the least (-0.3bps /-0.67%) to 44.2bps.

Breakeven analysis shows that the IG13 5s10s steepener, at 32.67bps carry, covers 9.11bps of flattening/inversion or 0.8 defaults over the next year. The indices themselves have very different breakevens with ITRX8 covering 4.3 defaults over its remaining life, and one year's carry covers 26.64bps widening (36%) or 1.5 defaults. XOver8=> 9.7 contract defaults, with 180.08bps widening (39%) or 3.8 defaults covered by one-year carry. ITRX12=> 7.8 contract defaults, with 18.31bps widening (22%) or 1.7 defaults covered by one-year carry. XOver12=> 15 contract defaults, with 117.25bps widening (26%) or 3.8 defaults covered by one-year carry. IG9 5Y=> 6.5 contract defaults, with 42.71bps widening (37%) or 2.4 defaults covered by one-year carry. IG9 7Y=> 11.6 contract defaults, with 30.16bps widening (23%) or 2.7 defaults covered by one-year carry. IG9 10Y=> 17.3 contract defaults, with 21.01bps widening (16%) or 2.7 defaults covered by one-year carry. IG13 5Y=> 8.7 contract defaults, with 21.52bps widening (23%) or 2 defaults covered by one-year carry. IG13 7Y=> 12.4 contract defaults, with 17.44bps widening (17%) or 2.1 defaults covered by one-year carry. IG13 10Y=> 17.7 contract defaults, with 14.81bps widening (13%) or 2.3 defaults covered by one-year carry. ExHVOL13=> 5 contract defaults, with 15.79bps widening (22%) or 1.1 defaults covered by one-year carry. HVOL13=> 3.6 contract defaults, with 39.69bps widening (23%) or 0.9 defaults covered by one-year carry. HY13=> 31 contract defaults, with 152.77bps widening (26%) or 8.2 defaults covered by one-year carry. LCDX12=> 41.8 contract defaults, with 147.36bps widening (32%) or 13.2 defaults covered by one-year carry.

IG Sector Moves and Betas
In IG, ENRG (the worst sector) under-performed IG, moving (on average) 1.1bps (1.47%) wider to an average of 81.5bps. CONS (the second weakest sector) under-performed IG, moving (on average) 0.8bps (1.07%) wider to an average of 79.3bps. INDU (the median sector) under-performed IG, moving (on average) 0.4bps (0.21%) wider to an average of 81.8bps. FINL (the second best sector) under-performed IG, moving (on average) 0.9bps (0.36%) tighter to an average of 171.8bps. TMT (the best sector) under-performed IG, moving (on average) 1bps (0.78%) tighter to an average of 92.3bps.

From the top-down, index capital structure changes shifted improving with credit outpacing equity. The sectors were mixed with CONS (divergent as equity beats credit), ENRG (divergent as equity beats credit), FINL (equity outperformed credit as they both strengthened), INDU (divergent as equity beats credit), and TMT (equity outperformed credit as they both strengthened).

CDX-based regression betas indicate that INDU (1.2x) have the highest beta and ENRG (0.73x) the lowest, with TMT (1.1x), FINL (0.95x), and CONS (0.94x) in between. Comparing the regression betas to current level betas we see that INDU (0.23x rich) is the richest sector, while FINL (-0.8x cheap) is the cheapest, with CONS (0.17x rich), TMT (0.09x rich), and ENRG (0.08x rich) trading more in line.

Focusing on intra-sector movements within IG, we notice dispersion increasing the most in INDU which shifted 1.5% to 49.8bps,  and the least in FINL which shifted -1.5% to 194.8bps,

Index Relative-Value and Key Levels
Across index credit quality, we saw HVOL move against its lack of trend relative to IG from a ratio of 1.81x to 1.82x, and HVOL also moved closer to IG and further from IG as it trades against its lack of trend now at 21.4% of the XO-IG difference, down from 61%. ExHVOL13 is currently trading tight to its week's range at 17.66%, between 72.04 to 70.01bps.HY shifted wider relative to IG, against its trend tighter, now at 6.09x, up from 5.99x yesterday. The HY-LCDX spread compressed to 112.06bps from 119.69bps, but remains below the short-term average of 124.31bps, with the HY/LCDX ratio falling to 1.24x, below its 5-day mean of 1.28x. The IG-MCDX differential compressed to -75bps from -73.25bps, but remains below the short-term average of -71.83bps, with the IG/MCDX ratio falling to 0.56x, below its 5-day mean of 0.57x. The HY-IG differential decompressed to 483.55bps from 482.94bps, but remains above the short-term average of 478.38bps, with the HY/IG ratio rising to 6.09x, above its 5-day mean of 6.01x.

IG is tighter than its opening levels whilst HY is wider with HY's range of 16.69bps below the week's average range multiple of 5.98x IG's range, at 4.45x. HY13 is currently trading in the middle of the week's range at 70.92%, between 590.94 to 548.32bps. IG13 is currently trading in the middle of the week's range at 50%, between 98.5 to 91.5bps.

Our pivot point analysis suggests intraday resistance at 95.7bps in IG, and breaking support at 94.27bps or resistance at 97.77bps as significant, with the index trend undetermined (based on pivot point moving average changes), shifting wider by 0.26bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 95.75bps as a critical pivot point with 100bps, 102.75bps, and 105.5bps as important resistance levels, and 93bps, 88.75bps, and 86bps as important support levels. The short-term 'protection' relative strength indicator on IG moved slightly more oversold but remains stable at 47.6%.

Our pivot point analysis suggests intraday resistance at 572.16bps in HY, and breaking support at 559bps or resistance at 587.22bps as significant, with the index trend bearish (based on pivot point moving average changes), shifting wider by 0.57bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 574.25bps as a critical pivot point for HY with 600.18bps, 616.88bps, and 633.57bps as important resistance levels, and 557.56bps, 531.62bps, and 514.93bps as important support levels.On a short-term basis (based on the last 5 days trading), we see 574.25bps as a critical pivot point for HY with 600.18bps, 616.88bps, and 633.57bps as important resistance levels, and 557.56bps, 531.62bps, and 514.93bps as important support levels.

Single-Name Movers
Today's biggest absolute movers in IG were Sempra Energy (+12.5bps), Boston Properties L.P. (+6bps), and GATX Corporation (+5.5bps) in the wideners, and International Lease Finance Corp. (-16.98bps), General Electric Capital Corp (-9bps), and Wells Fargo & Company (-7bps) in the tighteners. Today's biggest percentage movers in IG were Sempra Energy (+18.66%), Kohl's Corporation (+6.45%), and Black & Decker Corporation (+6.15%) in the wideners, and Wells Fargo & Company (-6.22%), Quest Diagnostics Incorporated (-4.47%), and General Electric Capital Corp (-4.34%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is very bearish with 21 wider to 17 tighter, and 29 steeper to 18 flatter as 0 of the 50 credits have inverted curves. The biggest absolute movers were GATX Corporation (+5.5bps), Kohl's Corporation (+5bps), and Ryder System Inc. (+4.5bps) in the wideners, and Citigroup Inc (-12.75bps), Bank of America Corp. (-12bps), and Morgan Stanley (-10.25bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were Kohl's Corporation (+6.45%), International Business Machines Corp. (+5.33%), and Ryder System Inc. (+3.98%) in the wideners, and Bank of America Corp. (-9.64%), JP Morgan Chase & Co. (-8.79%), and Morgan Stanley (-7.04%) in the tighteners.

Today's biggest absolute movers in Main were Anglo American Plc (+10.5bps), Vivendi SA (+7.5bps), and Finmeccanica SpA (+7bps) in the wideners, and Hellenic Telecommunications Organization SA (-12bps), Intesa Sanpaolo S.p.A. (-5bps), and Bank of Scotland plc (-4bps) in the tighteners. Today's biggest percentage movers in Main were Anglo American Plc (+8.61%), Vivendi SA (+6.7%), and Finmeccanica SpA (+6.6%) in the wideners, and Hellenic Telecommunications Organization SA (-8.19%), Intesa Sanpaolo S.p.A. (-5.59%), and Barclays Bank Plc (-3.95%) in the tighteners.

In the names of the XOver index, today's biggest percentage movers were BCM Ireland Finance Ltd (+6.08%), Renault SA (+5.09%), and Kabel Deutschland GmbH (+4.12%) in the wideners, and Seat Pagine Gialle SpA (-7.6%), M-real Oyj (-4.38%), and Gecina SA (-0.91%) in the tighteners. The largest absolute movers in XOver were BCM Ireland Finance Ltd (+57.7bps), Ineos Group Holdings plc (+39.96bps), and ONO Finance, PLC (+33.38bps) in the wideners, and Seat Pagine Gialle SpA (-136.85bps), M-real Oyj (-43.68bps), and Smurfit Kappa Funding Plc (-2.68bps) in the tighteners.

In the names of the HY index, today's biggest percentage movers were Saks Incorporated (+5.25%), Bombardier Inc. (+4.76%), and New York Times Company/The (+4.55%) in the wideners, and Boyd Gaming Corporation (-3.81%), Unisys Corporation (-3.08%), and CMS Energy Corp. (-3.03%) in the tighteners. The largest absolute movers in HY were Rite Aid Corp (+43.77bps), Level 3 Communications Inc. (+36.91bps), and Saks Incorporated (+35.41bps) in the wideners, and AMR Corp (-41.39bps), Boyd Gaming Corporation (-40.91bps), and Radian Group Inc (-35.95bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -3.75bps (or -3.43%) to 105.62bps. UBS AG (3.5bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst UBS AG (3.68%) is the worst (relative) performer. Citigroup Inc (-12.75bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Bank of America Corp. (-9.64%) is the best (relative) performer.

The CDR Aussie Index rose 1.34bps (or 1.63%) to 83.73bps. RIO Tinto Ltd (4.75bps) is the worst (absolute) performer, whilst Telstra Corporation Limited (6.05%) is the worst (relative) performer.

The CDR Asian Index rose 4.75bps (or 4.49%) to 110.57bps. Promise Co Ltd (25bps) is the worst (absolute) performer, whilst Toyota Motor Corporation (14.29%) is the worst (relative) performer. Sumitomo Mitsui Banking Corp (-2.56bps) is the best (absolute) performer, and Sumitomo Mitsui Banking Corp (-2.88%) is the best (relative) performer.

Comments

[MarketTruth]

With Volckner out of the way, gold is now free to climb higher.

[JimboJammer]

Government  Bonds  and  the  US  Dollar  are too  risky  to  hold..

There is  still  $  45+  Trillion  dollars  of  OTC  Derivitive  Losses

out  there  to  deal  with...   China  is  angry  about  3  or  more

things  the  USA  did...  Time  is  running  out..

[Mr Lennon Hendrix]

Look, it was a juke move; a ploy by the oligarchs....Barry Sanders moves btw?  Did anyone truly believe BS was about to institute "Tall Paul's" theories?  

this creating a last buying opportunity...so ask yourself, did I just buy enough gold, because that is all you are going to be able to buy at a reasonable price, for a long time.