Daily Credit Summary: February 4 - Triple Digits Here We Come

Spreads were mixed in the US with IG worse, HVOL improving, ExHVOL weaker, and HY selling off. IG trades 9.1bps wide (cheap) to its 50d moving average, which is a Z-Score of 1.1s.d.. At 99.75bps, IG has closed tighter on 72 days in the last 283 trading days (JAN09). The last five days have seen IG flat to its 50d moving average.

Indices typically underperformed single-names with skews widening in general as IG's skew widened as it underperformed, HVOL outperformed but widened the skew, ExHVOL's skew widened as it underperformed, HY's skew widened as it underperformed.

50.4% of names in IG moved more than their historical vol would imply as higher vol names underperformed lower vol names by 6.01% to 4.74%. 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 Kraft Foods Inc. (-3bps) pushing IG 0.02bps tighter, and International Lease Finance Corp. (+58.27bps) adding 0.4bps to IG. HVOL is more sensitive with DirecTV Holdings LLC pushing it 0.04bps tighter, and International Lease Finance Corp. contributing 1.69bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Kraft Foods Inc. (-3bps) pushing the index 0.03bps tighter, and Hartford Financial Services Group (+15bps) adding 0.16bps to ExHVOL.

The price of investment grade credit fell 0.34% to around 100.01% of par, while the price of high yield credits fell 1.47% to around 96.81% of par. ABX market prices are lower by 0.27% of par or in absolute terms, 0.84%. Volatility (VIX) is up 4.48pts to 25.57%, with 10Y TSY rallying (yield falling) 10.5bps to 3.6% and the 2s10s curve flattened by 2.5bps, as the cost of protection on US Treasuries rose 10.75bps to 57.5bps. 2Y swap spreads widened 1.6bps to 29.56bps, as the TED Spread widened by 0.5bps to 0.17% and Libor-OIS deteriorated 0.3bps to 9.9bps.

The Dollar strengthened with DXY rising 0.69% to 79.923, Oil falling $4.05 to $72.93 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 1.08% today (a 4.57% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $46.92 to $1062.88 as the S&P is down (1063 -3.05%) underperforming IG credits (99.75bps -0.34%) while IG, which opened wider at 92bps, outperforms HY credits. IG12 and XOver12 are +5.75bps and +23.5bps respectively while ITRX12 is +5.25bps to 86.75bps.

Dispersion rose +5.3bps 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 more systemic and less idiosyncratic narrowing of the distribution of spreads.

68% of IG credits are shifting by more than 3bps and 68% of the CDX universe are also shifting significantly (more than the 5 day average of 43%). The number of names wider than the index decreased by 3 to 43 as the day's range rose to 8.25bps (one-week average 4.3bps), between low bid at 91.75 and high offer at 100 and higher beta credits (6.02%) underperformed lower beta credits (5.43%).

In IG, wideners outpaced tighteners by around 61-to-1, with 122 credits wider. By sector, CONS saw 95% names wider, ENRGs 94% names wider, FINLs 100% names wider, INDUs 100% names wider, and TMTs 100% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG13 exFINLs) with the former trading at 83.75bps and the latter at 85.07bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 116.53bps from 101.21bps, and remains above the short-term average of 113.18bps, with the HY/XOver ratio rising to 1.25x, above its 5-day mean of 1.25x. The IG-Main spread decompressed to 13bps from 10.25bps, and remains above the short-term average of 12.02bps, with the IG/Main ratio rising to 1.15x, above its 5-day mean of 1.14x. Among the HY names, we see higher risk names (>500bps) underperforming lower risk (<500bps) names. In the IG names, we see higher beta names underperforming lower beta names.

In the US, non-financials outperformed financials as IG ExFINLs are wider by 4.4bps to 85.1bps, with 2 of the 105 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 12.6bps to 114.04bps, with Brokers (worst) wider by 19.67bps to 142.17bps, Finance names (best) wider by 23.57bps to 434.07bps, and Banks wider by 15.58bps to 128.17bps. Monolines are trading wider on average by 23.6bps (1.64%) to 3156.75bps.

In IG, FINLs underperformed non-FINLs (6.54% wider to 5.46% wider respectively), with the former (IG FINLs) wider by 10.4bps to 169.8bps, with 0 of the 20 names tighter. The IG CDS market (as per CDX) is 17.2bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (82.5bps), with the bond ETFs outperforming the IG CDS market by around 0.26bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 4.41bps to 83.75bps (with ITRX FINLs -trending wider- weaker by 8.62 to 98.75bps) and is currently trading at the wides of the week's range at 100%, between 83.75 to 79.34bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading at the wides of the week's range at 100.06%, between 75.3 to 70.93bps. ExHVOL underperformed LoVOL as the differential decompressed to 4.79bps from -2.38bps, and remains above the short-term average of -0.1bps. The Main exFINLS to IG ExHVOL differential compressed to 3.66bps from 10.72bps, and remains below the short-term average of 9.13bps.

The Emerging Market index is 7.1% riskier (18.6bps wider) to 281.1bps. EM12 (Trend Wider) is currently trading at the wides of the week's range at 99.98%, between 281.1 to 254.9bps. The HY-EM spread decompressed to 301.93bps from 281.72bps, but remains below the short-term average of 303.81bps, with the HY/EM ratio rising to 2.07x, below its 5-day mean of 2.15x.

Commentary compliment of www.creditresearch.com

Index/Intrinsics Changes

CDR LQD 50 NAIG +6.3bps to 90.54 (48 wider - 2 tighter <> 14 steeper - 36 flatter).
CDX13 IG +8bps to 99.75 ($-0.34 to $100.01) (FV +5.35bps to 98.45) (121 wider - 3 tighter <> 34 steeper - 90 flatter) - No Trend.
CDX13 HVOL -3bps to 162 (FV +10.54bps to 176.13) (30 wider - 0 tighter <> 2 steeper - 28 flatter) - Trend Tighter.
CDX13 ExHVOL +11.47bps to 80.09 (FV +3.76bps to 74.59) (91 wider - 4 tighter <> 63 steeper - 32 flatter).
CDX13 HY (30% recovery) Px $-1.4 to $96.88 / +36.9bps to 581.1 (FV +20.51bps to 554.11) (95 wider - 3 tighter <> 13 steeper - 86 flatter) - Trend Tighter.
ITRX12 Main +5.13bps to 86.63 (FV +7.12bps to 90.42) (123 wider - 1 tighter <> 71 steeper - 54 flatter) - No Trend
ITRX12 HiVol +8bps to 122.75 (FV +8.79bps to 123.58) (30 wider - 0 tighter <> 15 steeper - 15 flatter) - No Trend
ITRX12 LoVol +4.22bps to 75.22 (FV +6.6bps to 80.08) (93 wider - 2 tighter <> 39 steeper - 56 flatter) - Sideways Trading
ITRX12 XOver +25bps to 468 (FV +12.42bps to 478.35) (41 wider - 3 tighter <> 23 steeper - 22 flatter) - Trend Wider
LCDX12 (65% recovery) Px $-0.56 to $103.31 / +15.64bps to 460 - Trend Tighter.
MCDX12 +13bps to 180.5bps. - Trend Wider.
CDR Counterparty Risk Index rose 12.6bps (12.42%) to 114.04bps (14 wider - 0 tighter).
CDR Government Risk Index rose 12.54bps (14.86%) to 96.89bps..
DXY strengthened 0.76% to 79.98.
Oil fell $3.8 to $73.18.
Gold fell $47.05 to $1062.75.
VIX increased 4.48pts to 26.08%.
10Y US Treasury yields fell 9.9bps to 3.61%.
S&P500 Futures lost 3.17% to 1061.6.

Index Internals
Within the 240 name CDX Index Universe, sentiment is significantly bearish, with  228 (96%) wideners to 7 (3%) tighteners and 52 (22%) steepeners to 182 (77%) flatteners (32.6 wideners for every tightener). Among this universe, there are 2 credits with a bullish trend, and 8 with a bearish trend (based on the previous five days trading action).

The market's general sentiment is evident as we note that 149 credits are at the widest in their 5-day range currently, and 8 are at their tightest.Notably, from the 240 name index universe, there are 35 (~15%) credits that have inverted curves, with an average inversion of 35% of 5Y CDS.

Within the IG universe, dispersion overall has risen 5.3bps to 93.2bps, as the wings of the distribution (10-90%) increased less than the centre (25-75%) of the distribution. The distribution shifted non-linearly as the 90th percentile increased the most (9bps /6.48%) to 148.8bps, and the 25th percentile increased the least (1.5bps /2.86%) to 54bps.

Breakeven analysis shows that the IG13 5s10s steepener, at 41.07bps carry, covers 10.09bps of flattening/inversion or 0.9 defaults over the next year. The indices themselves have very different breakevens with ITRX8 covering 4.4 defaults over its remaining life, and one year's carry covers 27.32bps widening (36%) or 1.6 defaults. XOver8=> 9.6 contract defaults, with 180.16bps widening (39%) or 3.8 defaults covered by one-year carry. ITRX12=> 8.2 contract defaults, with 19.21bps widening (22%) or 1.8 defaults covered by one-year carry. XOver12=> 15.2 contract defaults, with 120.33bps widening (26%) or 3.9 defaults covered by one-year carry. IG9 5Y=> 6.7 contract defaults, with 44.02bps widening (37%) or 2.4 defaults covered by one-year carry. IG9 7Y=> 12.2 contract defaults, with 31.75bps widening (23%) or 2.8 defaults covered by one-year carry. IG9 10Y=> 17.8 contract defaults, with 21.81bps widening (16%) or 2.8 defaults covered by one-year carry. IG13 5Y=> 9.2 contract defaults, with 22.65bps widening (23%) or 2.1 defaults covered by one-year carry. IG13 7Y=> 12.2 contract defaults, with 17.23bps widening (17%) or 2.1 defaults covered by one-year carry. IG13 10Y=> 17.6 contract defaults, with 14.62bps widening (13%) or 2.3 defaults covered by one-year carry. ExHVOL13=> 5.6 contract defaults, with 18.05bps widening (23%) or 1.3 defaults covered by one-year carry. HVOL13=> 3.8 contract defaults, with 41.2bps widening (23%) or 0.9 defaults covered by one-year carry. HY13=> 31.1 contract defaults, with 153.61bps widening (26%) or 8.2 defaults covered by one-year carry. LCDX12=> 41.3 contract defaults, with 144.85bps widening (31%) or 13 defaults covered by one-year carry.

IG Sector Moves and Betas
In IG, INDU (the worst sector) out-performed IG, moving (on average) 1.3bps (7.83%) wider to an average of 86.4bps. FINL (the second weakest sector) out-performed IG, moving (on average) 1.6bps (6.48%) wider to an average of 178bps. CONS (the median sector) out-performed IG, moving (on average) 1.3bps (5.71%) wider to an average of 80.9bps. ENRG (the second best sector) out-performed IG, moving (on average) 0.5bps (4.48%) wider to an average of 83.7bps. TMT (the best sector) out-performed IG, moving (on average) 0.6bps (3.51%) wider to an average of 93.7bps.

From the top-down, index capital structure changes shifted both weaker with credit outperforming equity. The sectors were mixed with CONS (both weaker with credit outperforming equity), ENRG (both weaker with credit outperforming equity), FINL (both weaker with credit outperforming equity), INDU (both weaker with credit outperforming equity), and TMT (both weaker with credit outperforming equity).

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 (0.21x rich) is the richest sector, while FINL (-0.79x cheap) is the cheapest, with CONS (0.18x rich), TMT (0.1x 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 10.54% to 57bps,  and the least in TMT which shifted 1.64% to 41.8bps,

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 1.8x to 1.62x, and HVOL also moved closer to IG and further from IG as it trades with its trend tighter now at 17.4% of the XO-IG difference, down from 21%. ExHVOL13 is currently trading at the wides of the week's range at 100.02%, between 80.09 to 68.62bps.HY shifted tighter relative to IG, with its trend tighter, now at 5.83x, down from 5.93x yesterday. The HY-LCDX spread decompressed to 121.12bps from 99.85bps, and remains above the short-term average of 112.77bps, with the HY/LCDX ratio rising to 1.26x, above its 5-day mean of 1.25x. The IG-MCDX differential compressed to -80.75bps from -75.75bps, but remains below the short-term average of -75bps, with the IG/MCDX ratio rising to 0.55x, below its 5-day mean of 0.56x. The HY-IG differential decompressed to 481.37bps from 452.46bps, and remains above the short-term average of 472.44bps, with the HY/IG ratio falling to 5.83x, below its 5-day mean of 5.97x.

Both IG and HY are above (wider than) their opening levels today with HY's range of 42.92bps below the week's average range multiple of 6.92x IG's range, at 5.2x. HY13 is currently trading at the wides of the week's range at 89.06%, between 586.37 to 538.4bps. IG13 is currently trading at the wides of the week's range at 97.37%, between 100 to 90.5bps.

Our pivot point analysis suggests intraday support at 93.13bps in IG, and breaking support at 91.07bps or resistance at 93.57bps as significant, with the index trend undetermined (based on pivot point moving average changes), shifting tighter by 0.74bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 93bps as a critical pivot point with 95.5bps, 100.25bps, and 105bps as important resistance levels, and 88.25bps, 85.75bps, and 81bps as important support levels. The short-term 'protection' relative strength indicator on IG moved from strongly oversold to stable at 63.6%.

Our pivot point analysis suggests intraday resistance at 561.56bps in HY, and breaking support at 541.5bps or resistance at 562.87bps as significant, with the index trend bullish (based on pivot point moving average changes), shifting tighter by 5.36bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 554.3bps as a critical pivot point for HY with 570.2bps, 602.27bps, and 634.34bps as important resistance levels, and 522.23bps, 506.33bps, and 474.26bps as important support levels.On a short-term basis (based on the last 5 days trading), we see 554.3bps as a critical pivot point for HY with 570.2bps, 602.27bps, and 634.34bps as important resistance levels, and 522.23bps, 506.33bps, and 474.26bps as important support levels.

Single-Name Movers
Today's biggest absolute movers in IG were International Lease Finance Corp. (+58.27bps), Alcoa Inc. (+28.75bps), and General Electric Capital Corp (+18.5bps) in the wideners, and Kraft Foods Inc. (-3bps), Sara Lee Corp. (-0.5bps), and XTO Energy Inc (-0.25bps) in the tighteners. Today's biggest percentage movers in IG were Black & Decker Corporation (+15.87%), Dow Chemical Company (+15.25%), and Wells Fargo & Company (+14.21%) in the wideners, and Kraft Foods Inc. (-3.77%), Sara Lee Corp. (-0.93%), and XTO Energy Inc (-0.68%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is bearish with 48 wider to 2 tighter, and 14 steeper to 36 flatter as 1 of the 50 credits have inverted curves. The biggest absolute movers were Bank of America Corp. (+23bps), Citigroup Inc (+22bps), and Morgan Stanley (+19bps) in the wideners, and Kraft Foods Inc. (-3bps), Sara Lee Corp. (-0.5bps), and Berkshire Hathaway Inc (+0.25bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were JP Morgan Chase & Co. (+25.93%), Bank of America Corp. (+21.4%), and Morgan Stanley (+14.79%) in the wideners, and Kraft Foods Inc. (-3.77%), Sara Lee Corp. (-0.93%), and Berkshire Hathaway Inc (+0.18%) in the tighteners.

Today's biggest absolute movers in Main were Banco Espirito Santo SA (+62.5bps), Portugal Telecom International Finance B.V. (+32.75bps), and EDP-Energias de Portugal, S.A. (+30.25bps) in the wideners, and Technip SA (-1bps), Nestle SA (0bps), and Deutsche Bahn AG (+0.68bps) in the tighteners. Today's biggest percentage movers in Main were Banco Espirito Santo SA (+32.89%), Portugal Telecom International Finance B.V. (+26.25%), and EDP-Energias de Portugal, S.A. (+26.25%) in the wideners, and Technip SA (-1.64%), Nestle SA (0%), and Deutsche Bahn AG (+1.36%) in the tighteners.

In the names of the XOver index, today's biggest percentage movers were Lafarge SA (+13.11%), Norske Skogindustrier ASA (+7.78%), and Renault SA (+7.52%) in the wideners, and Cognis GmbH (-8.16%), Seat Pagine Gialle SpA (-3.91%), and M-real Oyj (-2.59%) in the tighteners. The largest absolute movers in XOver were Norske Skogindustrier ASA (+91.74bps), ONO Finance, PLC (+52.74bps), and BCM Ireland Finance Ltd (+51.02bps) in the wideners, and Seat Pagine Gialle SpA (-67.62bps), Cognis GmbH (-38.75bps), and M-real Oyj (-23.94bps) in the tighteners.

In the names of the HY index, today's biggest percentage movers were GMAC LLC (+12.66%), McClatchy Co./The (+9.12%), and Ford Motor Company (+8.9%) in the wideners, and Unisys Corporation (-3.16%), Starwood Hotels & Resorts Worldwide Inc. (-1.13%), and HCA Inc (-0.49%) in the tighteners. The largest absolute movers in HY were Radian Group Inc (+129.7bps), Clear Channel Communications Inc (+108.43bps), and McClatchy Co./The (+88.5bps) in the wideners, and Unisys Corporation (-20.12bps), HCA Inc (-2.5bps), and Starwood Hotels & Resorts Worldwide Inc. (-2.25bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) rose 12.6bps (or 12.42%) to 114.04bps. Merrill Lynch & Co., Inc. (26bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst JP Morgan Chase & Co. (25.93%) is the worst (relative) performer. Dresdner Bank AG (2.61bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Dresdner Bank AG (3.68%) is the best (relative) performer.

The CDR Aussie Index rose 1.76bps (or 2.12%) to 84.86bps. Crown Limited (5.25bps) is the worst (absolute) performer, whilst BHP Billiton Ltd (7.48%) is the worst (relative) performer. Wesfarmers Limited (-2.5bps) is the best (absolute) performer, and Wesfarmers Limited (-2.7%) is the best (relative) performer.

The CDR Asian Index rose 1.12bps (or 1.03%) to 110.07bps. Toyota Motor Corporation (8.86bps) is the worst (absolute) performer, whilst Toyota Motor Corporation (10.32%) is the worst (relative) performer. Samsung Electronics Co., Ltd. (-5.5bps) is the best (absolute) performer, and Samsung Electronics Co., Ltd. (-7.05%) is the best (relative) performer.

Comments

[Anonymous]

$158 billion is various gubment debt being auctioned off shortly - nothing like a well timed crash to heard the masses into buying worthless crap.

[Reven]

Good point, we really needed a resumption of fear to force people into treasuries this year.  Perhaps the PPT pulled the plug on their futures pumping.

[dumpster]

gazing over that report brought tingles of eye strain ,

way above my pay pivot point

[Unscarred]

CreditTyler is definitely hardcore.

[barthezz]

does the stuff above come with an instruction manual that I can download?