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Daily Credit Summary: July 23 - Up But Not Out
Spreads were tighter in the US as all the indices improved (as HY
outperformed IG with the latter making all of its moves by 11amET and
flatlining the rest of the day at 2009 tights - pulling modestly wider
into the close). Indices typically underperformed single-names (thanks
to some tail risk compression in CIT, ILFC, and TXTFI) with skews
mostly narrower as IG underperformed but narrowed the skew, HVOL
underperformed but narrowed the skew, ExHVOL outperformed pushing the
skew wider, XO underperformed but compressed the skew, and HY
outperformed but narrowed the skew. The IG curve steepened (in the face
of TSY steepening) but remains significantly steeper than intrinsics as
the steepening was more in the longer-end than we had seen in the
short-end recently.
The names having the largest impact on IG
are Metlife, Inc. (-45bps) pushing IG 0.36bps tighter (although
intraday we saw CIT rally on more technically-driven protection selling
with a late day gap back wider to unch), and Safeway Inc. (+5bps)
adding 0.04bps to IG (we note that many of the very tightest CDS names
stormed relatively tighter today as we suspect some Super Senior
tranche hedges were unwound - MCD 3bps tighter to 20/25 for example as
it misses and stock tanks). HVOL is more sensitive with Metlife, Inc.
pushing it 1.61bps tighter, and Canadian Natural Resources Limited
contributing -0.03bps to HVOL's change today. The less volatile
ExHVOL's move today is driven by both AT&T Inc. (-15bps) pushing
the index 0.16bps tighter, and Safeway Inc. (+5bps) adding 0.05bps to
ExHVOL.
The price of investment grade credit rose 0.26% to
around 99.23% of par, while the price of high yield credits rose 1.5%
to around 87.81% of par. ABX market prices are higher (improving) by
0.39% of par or in absolute terms, 1.93%. Broadly speaking, CMBX market
prices are higher (improving) by 0.26% of par or in absolute terms,
0.06%. Volatility (VIX) is down -0.04pts to 23.43%, with 10Y TSY
selling off (yield rising) 11.5bps to 3.66% and the 2s10s curve
steepened by 4.1bps, as the cost of protection on US Treasuries fell
1.48bps to 31.845bps. 2Y swap spreads widened 0.8bps to 44bps, as the
TED Spread widened by 0.2bps to 0.32% and Libor-OIS improved 0.2bps to
30.7bps.
The Dollar strengthened with DXY rising 0.47% to
79.073 (though its intraday swing was dramatic and clearly demarked the
risk-on/risk-off line), Oil rising $1.75 to $67.15 (outperforming the
dollar as the value of Oil (rebased to the value of gold) rose by 2.99%
today (a 3.15% rise in the relative (dollar adjusted) value of a barrel
of oil), and Gold dropping $2.9 to $948.5 as the S&P rallies (965.3
1.67%) outperforming IG credits (118.5bps 0.26%) while IG, which opened
tighter at 124.25bps, underperforms HY credits. IG11 and XOver11 are
-6.25bps and -21bps respectively while ITRX11 is -5.12bps to 95.88bps
(breaking thru 100bps for the first time in this contract - back to
pre-Lehman as FINLs outperform non-FINLs over there).
Dispersion
fell -5bps 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 increasing more than expected today indicating a
less systemic and more idiosyncratic spread widening/tightening at the
tails.
66% of IG credits are shifting by more than 3bps and
70% of the CDX universe are also shifting significantly (more than the
5 day average of 60%). The number of names wider than the index
decreased by 2 to 40 as the day's range rose to 8bps (one-week average
5.35bps), between low bid at 117 and high offer at 125 and higher beta
credits (-5.67%) outperformed lower beta credits (-4.95%).
In
IG, wideners were outpaced by tighteners by around 12-to-1, with only 8
credits notably wider. By sector, CONS saw 11% names wider, ENRGs 0%
names wider, FINLs 10% names wider, INDUs 7% names wider, and TMTs 0%
names wider. Focusing on non-financials, Europe (ITRX Main exFINLS)
underperformed US (IG12 exFINLs) with the former trading at 97.85bps
and the latter at 97.81bps.
Cross Market, we are seeing the
HY-XOver spread compressing to 195.71bps from 223.54bps, and remains
below the short-term average of 222.88bps, with the HY/XOver ratio
falling to 1.3x, below its 5-day mean of 1.33x. The IG-Main spread
compressed to 22.62bps from 23.75bps, but remains above the short-term
average of 22bps, with the IG/Main ratio rising to 1.24x, above its
5-day mean of 1.21x.
In the US, non-financials outperformed
financials as IG ExFINLs are tighter by 6bps to 97.8bps, with 96 of the
104 names tighter. while among US Financials, the CDR Counterparty Risk
Index fell 5.85bps to 122.79bps, with Finance names (worst) tighter by
2.9bps to 947.66bps, Brokers (best) tighter by 7.06bps to 141.89bps,
and Banks tighter by 8.11bps to 166.47bps. Monolines are trading
tighter on average by -141.58bps (5.33%) to 2458.51bps.
In IG,
FINLs underperformed non-FINLs (3.54% tighter to 5.74% tighter
respectively), with the former (IG FINLs) tighter by 12.6bps to 343bps,
with 19 of the 21 names tighter. The IG CDS market (as per CDX) is
30.2bps cheap (we'd expect LQD to underperform TLH) to the
LQD-TLH-implied valuation of investment grade credit (88.28bps), with
the bond ETFs outperforming the IG CDS market by around 1.96bps.
In
Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 4.43bps to
97.85bps (with ITRX FINLs -trending tighter- better by 7.88 to 88bps)
and is currently trading tight to its week's range at 0%, between
113.94 to 97.85bps, and is trending tighter. Main LoVOL (trend tighter)
is currently trading tight to its week's range at -0.01%, between 81.12
to 67.58bps. ExHVOL outperformed LoVOL as the differential compressed
to -11.13bps from -7.41bps, and remains below the short-term average of
-9.31bps. The Main exFINLS to IG ExHVOL differential decompressed to
41.4bps from 39.72bps, and remains above the short-term average of
40.79bps.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes
CDR LQD 50 NAIG091 -8.62bps to 142.79 (3 wider - 46 tighter <> 34 steeper - 15 flatter).
CDX12
IG -6.25bps to 118.5 ($0.26 to $99.23) (FV -6.9bps to 136.46) (9 wider
- 114 tighter <> 84 steeper - 41 flatter) - Trend Tighter.
CDX12 HVOL -6.67bps to 315 (FV -18.19bps to 382.23) (0 wider - 30 tighter <> 28 steeper - 2 flatter) - Trend Tighter.
CDX12 ExHVOL -6.12bps to 56.45 (FV -3.66bps to 69.87) (9 wider - 86 tighter <> 39 steeper - 56 flatter).
CDX11 XO -11bps to 336.4 (FV -16.57bps to 405.38) (3 wider - 31 tighter <> 30 steeper - 4 flatter) - Trend Tighter.
CDX12
HY (30% recovery) Px $+1.5 to $87.81 / -48.8bps to 848 (FV -35.59bps to
790.55) (7 wider - 87 tighter <> 73 steeper - 22 flatter) - Trend
Tighter.
LCDX12 (65% recovery) Px $+1.47 to $89.7 / -55.5bps to 567.58 - Trend Tighter.
MCDX12 -1.25bps to 168.75bps. - Trend Tighter.
CDR Counterparty Risk Index fell 5.62bps (-4.37%) to 123.03bps (1 wider - 13 tighter).
CDR Government Risk Index fell 1.25bps (-2.49%) to 48.94bps..
DXY strengthened 0.47% to 79.07.
Oil rose $1.52 to $66.92.
Gold fell $2.9 to $948.5.
VIX fell 0.04pts to 23.43%.
10Y US Treasury yields rose 11.3bps to 3.66%.
S&P500 Futures gained 1.67% to 965.3.
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Don't get why Metlife is moving around if they have a Fed backstop?
CRE???
TALFed
While the host location in central Sweden?
While is the host country for this blog in Sweden?
Why is the host country for this blog in Sweden?
the host country is not in sweden. the host country is in wyoming and the servers are in dick cheney's secret fly fishing shack.
Sweden? So was piratebay. Careful TD, even the Swedes bow to pressue.
It is in Sweden so the NSA can legally monitor the blog and track down sedition.
Never mind DMCA.
For anyone that cares....
The point and figure charts for the Dow, Nas, and the SPY all point to higher ground. IT does not look like a bull trap. I mention it as a point to notice for now. Something got us here. And, I grant that we are far from over in terms down side financially or economically. I am committed to the extent I am comfortable, will keep a hairy eyeball on when it flips, it will, and then short.