Daily Credit Summary: January 19 - Credit Pities The Equity Fools

Spreads were generally wider in the US from Friday's close as IG underperformed HY and breadth was very negative at around 4-to-1 wideners-to-tighteners (and 2-to-1 steepeners to flatteners). Single-names were much more negative than indices in the higher beta names. HY13 is tighter from Friday's close but is wider on yesterday's weak volume day although it remains below par and intraday was unable to trade below 500bps. As stocks moved to the upper end of their ten-day channel into the close we came off our wides of the day in IG and HY but single-names remained weak overall.

IG13 made its widest intraday wide today (at 87bps) since 12/22 and is now over 10bps wide of its swing tight on 01/11. For the sixth day in a row, IG has made wider tights and wider wides intraday and successively wider closes (the longest run of wider closes since 08/10-17) - as an aside we see 85.875bps and 82.875bps as short-term pivot point support and resistance. IG13 saw 3s5s flatten (as 3Y underperformed) and 5s10s steepen (seems like that butterfly idea is gaining some traction). HY has also followed a similar pattern of intraday wides and tights with intrinsics much more consistently wider day after day than the index for now.

Spreads were mixed in the US from Friday's close with IG worse, HVOL wider, ExHVOL better, and HY rallying (though wider from a low volume close yesterday). IG trades 7.4bps tight (rich) to its 50d moving average, which is a Z-Score of -0.8s.d.. At 84.75bps, IG has closed tighter on only 16 days in the last 271 trading days. The last five days have seen IG converging to its 50d moving average.

Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL outperformed but narrowed the skew, HY outperformed but narrowed the skew.

Only 4% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by 0.71% to 1.43%. IG's vol is around 6.19% per 2 day period, which leaves 96 names higher vol and 29 lower vol than the index.

The names having the largest impact on IG are UnitedHealth Group Inc (-8.75bps) pushing IG 0.07bps tighter, and International Lease Finance Corp. (+28.04bps) adding 0.19bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 0.25bps tighter, and International Lease Finance Corp. contributing 0.81bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both UnitedHealth Group Inc (-8.75bps) pushing the index 0.09bps tighter, and Hartford Financial Services Group (+12.5bps) adding 0.14bps to ExHVOL.

The price of investment grade credit fell 0.05% to around 100.65% of par, while the price of high yield credits rose 0.62% to around 99.5% of par. ABX market prices are lower by 0% of par or in absolute terms, 0.07%. Volatility (VIX) is down -0.43pts to 17.61%, with 10Y TSY selling off (yield rising) 2.6bps to 3.7% and the 2s10s curve steepened by 0.2bps, as the cost of protection on US Treasuries rose 0.27bps to 37.5bps. 2Y swap spreads widened 0.4bps to 27.25bps, as the TED Spread tightened by 0.1bps to 0.2% and Libor-OIS improved 0.8bps to 10.5bps.

The Dollar strengthened with DXY rising 0.24% to 77.511, Oil rising $0.95 to $78.95 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.55% today (a 1.46% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $7.47 to $1138.4 as the S&P rallies (1146.2 1.23%) outperforming IG credits (84.75bps -0.05%) while IG, which opened wider at 86.38bps, underperforms HY credits. IG11 and XOver11 are +1.56bps and -4.75bps respectively while ITRX11 is +1.63bps to 75.88bps.

Dispersion rose +1.8bps 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 19% of IG credits are shifting by more than 3bps and 39% of the CDX universe are also shifting significantly (less than the 5 day average of 43%). The number of names wider than the index stayed at 46 as the day's range fell to 3bps (one-week average 3.8bps), between low bid at 84 and high offer at 87 and higher beta credits (0.92%) underperformed lower beta credits (0.84%).

In IG, wideners outpaced tighteners by around 4-to-1, with 66 credits wider. By sector, CONS saw 58% names wider, ENRGs 71% names wider, FINLs 26% names wider, INDUs 50% names wider, and TMTs 54% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG13 exFINLs) with the former trading at 75.44bps and the latter at 74.13bps.

Cross Market, we are seeing the HY-XOver spread compressing to 103.49bps from 114.67bps, but remains above the short-term average of 94.46bps, with the HY/XOver ratio falling to 1.25x, above its 5-day mean of 1.23x. The IG-Main spread compressed to 8.87bps from 9.25bps, but remains below the short-term average of 9.45bps, with the IG/Main ratio falling to 1.12x, below its 5-day mean of 1.13x.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 0.9bps to 74.1bps, with 19 of the 106 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 1.92bps to 91.44bps, with Finance names (worst) wider by 7.43bps to 420.48bps, Banks (best) tighter by 4.17bps to 98.92bps, and Brokers tighter by 4.5bps to 110.83bps. Monolines are trading wider on average by 85.45bps (1.91%) to 2870.58bps.

In IG, FINLs outperformed non-FINLs (0.28% wider to 1.21% wider respectively), with the former (IG FINLs) wider by 0.4bps to 149.5bps, with 11 of the 19 names tighter. The IG CDS market (as per CDX) is 15.2bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (69.54bps), with the bond ETFs outperforming the IG CDS market by around 3.76bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 1.5bps to 75.44bps (with ITRX FINLs -trending wider- weaker by 2.13 to 77.63bps) and is currently trading at the wides of the week's range at 100%, between 75.44 to 65.75bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 99.96%, between 66.53 to 56.64bps. ExHVOL outperformed LoVOL as the differential compressed to 0.3bps from 2.7bps, and remains below the short-term average of 1.68bps. The Main exFINLS to IG ExHVOL differential decompressed to 8.61bps from 6.7bps, and remains above the short-term average of 7.39bps.

The Emerging Market index is 1.3% less risky (3.1bps tighter) to 234.5bps. EM12 (Trend Wider) is currently trading at the wides of the week's range at 79.48%, between 237.6 to 222.3bps. The HY-EM spread compressed to 278.28bps from 291.06bps, but remains above the short-term average of 266.55bps, with the HY/EM ratio falling to 2.19x, above its 5-day mean of 2.16x.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes
(From Friday's close)

CDR LQD 50 NAIG -0.51bps to 75.82 (22 wider - 18 tighter <> 39 steeper - 10 flatter).

CDX13 IG +1bps to 84.5 ($-0.04 to $100.66) (FV +0.68bps to 85.32) (65 wider - 26 tighter <> 90 steeper - 31 flatter) - Trend Wider.

CDX13 HVOL +5bps to 140 (FV +1.19bps to 150.05) (18 wider - 7 tighter <> 22 steeper - 7 flatter) - Trend Wider.

CDX13 ExHVOL -0.26bps to 66.97 (FV +0.57bps to 65.33) (47 wider - 48 tighter <> 27 steeper - 68 flatter).

CDX13 HY (30% recovery) Px $+0.71 to $99.59 / -18.2bps to 510.5 (FV +8.4bps to 494.27) (76 wider - 17 tighter <> 56 steeper - 43 flatter) - Trend Wider.

ITRX12 Main +1.75bps to 76 (FV +0.7bps to 75.55) (75 wider - 40 tighter <> 89 steeper - 36 flatter) - Trend Wider

ITRX12 HiVol 0bps to 105 (FV +1.34bps to 106.55) (19 wider - 11 tighter <> 20 steeper - 10 flatter) - Trend Wider

ITRX12 LoVol +2.3bps to 66.84 (FV +0.5bps to 65.88) (56 wider - 39 tighter <> 26 steeper - 69 flatter) - Trend Wider

ITRX12 XOver -2bps to 412 (FV -4.9bps to 432.21) (24 wider - 20 tighter <> 26 steeper - 19 flatter) - No Trend

LCDX12 (65% recovery) Px $0 to $105.4 / 0bps to 388.96 - Trend Wider.

MCDX12 +3bps to 156bps. - Trend Wider.

CDR Counterparty Risk Index fell 2.45bps (-2.63%) to 90.9bps (3 wider - 11 tighter).

CDR Government Risk Index fell 0.57bps (-0.79%) to 71.17bps..

DXY strengthened 0.24% to 77.51.

Oil rose $0.95 to $78.95.

Gold rose $7.47 to $1138.4.

VIX fell 0.45pts to 17.61%.

10Y US Treasury yields rose 2.8bps to 3.71%.

S&P500 Futures gained 1.23% to 1146.2.

Comments

[frank]

Where can one obtain more information on the ExHVOL?  Unable to find anything on http://www.markit.com/cds/cds-page.html