Daily Credit Summary: July 27 - Dispersion Rising
Spreads were tighter in the US as all the indices improved (with HY and
IG back to early SEP08 levels on an adjusted index basis). Indices
typically underperformed single-names (as despite the late day surge to
new tights in IG, we heard more single-name protection buying hedged
via the index) with skews mostly narrower as IG underperformed but
narrowed the skew, HVOL outperformed but widened the skew, ExHVOL
intrinsics beat and narrowed the skew, XO underperformed but compressed
the skew, and HY outperformed but narrowed the skew.
having the largest impact on IG are CIT Group Inc (-106.14bps) pushing
IG 0.42bps tighter, and FirstEnergy Corp (+4.6bps) adding 0.04bps to
IG. HVOL is more sensitive with CIT Group Inc pushing it 1.88bps
tighter, and Simon Property Group, L.P. contributing 0.1bps to HVOL's
change today. The less volatile ExHVOL's move today is driven by both
Toll Brothers, Inc. (-12.5bps) pushing the index 0.13bps tighter, and
FirstEnergy Corp (+4.6bps) adding 0.05bps to ExHVOL.
of investment grade credit rose 0.19% to around 99.44% of par, while
the price of high yield credits rose 0.8075% to around 88.69% of par.
ABX market prices are higher (improving) by 0.81% of par or in absolute
terms, 2.13%. Broadly speaking, CMBX market prices are higher
(improving) by 0.57% of par or in absolute terms, 0.17%. Volatility
(VIX) is up 1.19pts to 24.28%, with 10Y TSY selling off (yield rising)
6.7bps to 3.73% and the 2s10s curve steepened by 2.6bps, as the cost of
protection on US Treasuries fell 4.17bps to 28bps. 2Y swap spreads
tightened 3bps to 41.25bps, as the TED Spread tightened by 1.2bps to
0.31% and Libor-OIS improved 0.7bps to 29.9bps.
weakened with DXY falling 0.14% to 78.638, Oil rising $0.19 to $68.24
(outperforming the dollar as the value of Oil (rebased to the value of
gold) fell by 0% today (a 0.14% rise in the relative (dollar adjusted)
value of a barrel of oil), and Gold increasing $2.66 to $954.01 as the
S&P rallies (979.7 0.19%) outperforming IG credits (113.5bps 0.2%)
while IG, which opened tighter at 114bps, underperforms HY credits.
IG11 and XOver11 are -6.5bps and -20bps respectively while ITRX11 is
-3.5bps to 91.25bps.
Total dispersion fell 10.6bps in IG
(thanks in large part to the tail compression of CIT/ILFC but the
middle of the curve was more dispersed). 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.
50% of IG credits are
shifting by more than 3bps and 57% of the CDX universe are also
shifting significantly (more than the 5 day average of 55%). The number
of names wider than the index stayed at 40 as the day's range fell to
4bps (one-week average 5.3bps), between low bid at 113 and high offer
at 117 and higher beta credits (-3.53%) outperformed lower beta credits
In IG, wideners were outpaced by tighteners by
around 6-to-1 (breadth not quite as high as recent rally days), with
only 23 credits wider. By sector, CONS saw 19% names wider, ENRGs 38%
names wider, FINLs 24% names wider, INDUs 7% names wider, and TMTs 13%
names wider. Focusing on non-financials, Europe (ITRX Main exFINLS)
underperformed US (IG12 exFINLs) with the former trading at 93.81bps
and the latter at 93.69bps.
Cross Market, we are seeing the
HY-XOver spread compressing to 187.9bps from 193.55bps, but remains
below the short-term average of 211.59bps, with the HY/XOver ratio
rising to 1.3x, below its 5-day mean of 1.32x. The IG-Main spread
compressed to 22.25bps from 23.25bps, and remains below the short-term
average of 22.98bps, with the IG/Main ratio falling to 1.24x, above its
5-day mean of 1.24x.
In the US, non-financials outperformed
financials as IG ExFINLs are tighter by 3.3bps to 93.7bps, with 76 of
the 104 names tighter. while among US Financials, the CDR Counterparty
Risk Index fell 5.04bps to 115.69bps, with Brokers (worst) tighter by
1.5bps to 138.76bps, Banks (best) tighter by 5.32bps to 162.04bps, and
Finance names tighter by 17.63bps to 878.59bps. Monolines are trading
tighter on average by -96.66bps (3.88%) to 2386.22bps.
FINLs underperformed non-FINLs (3.18% tighter to 3.44% tighter
respectively), with the former (IG FINLs) tighter by 10.7bps to
326.5bps, with 16 of the 21 names tighter. The IG CDS market (as per
CDX) is 29.2bps cheap (we'd expect LQD to underperform TLH) to the
LQD-TLH-implied valuation of investment grade credit (84.34bps), with
the bond ETFs underperforming the IG CDS market by around 0.29bps.
Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 3.1bps to
93.81bps (with ITRX FINLs -trending tighter- better by 5.13 to 81bps)
and is currently trading tight to its week's range at 0%, between
103.88 to 93.81bps, and is trending tighter. Main LoVOL (trend tighter)
is currently trading tight to its week's range at 0.02%, between 73.08
to 63.38bps. ExHVOL underperformed LoVOL as the differential
decompressed to -7.99bps from -9.99bps, and remains above the
short-term average of -8.59bps. The Main exFINLS to IG ExHVOL
differential compressed to 38.42bps from 41.12bps, and remains below
the short-term average of 39.67bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG091 -5.38bps to 138.4 (5 wider - 39 tighter <> 26 steeper - 23 flatter).
IG -4.5bps to 113.5 ($0.19 to $99.44) (FV -4.5bps to 130.48) (23 wider
- 92 tighter <> 71 steeper - 54 flatter) - Trend Tighter.
CDX12 HVOL -17.5bps to 297.5 (FV -13.8bps to 357.34) (1 wider - 29 tighter <> 22 steeper - 8 flatter) - Trend Tighter.
CDX12 ExHVOL -0.39bps to 55.39 (FV -1.82bps to 67.1) (22 wider - 73 tighter <> 46 steeper - 49 flatter).
CDX11 XO -8.3bps to 321.3 (FV -9.76bps to 391.89) (1 wider - 33 tighter <> 25 steeper - 9 flatter) - Trend Tighter.
HY (30% recovery) Px $+0.81 to $88.6875 / -25.7bps to 820.4 (FV
-16.08bps to 769.46) (10 wider - 80 tighter <> 61 steeper - 31
flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.4 to $89.9 / -14.5bps to 553.94 - Trend Tighter.
MCDX12 -5bps to 160bps. - Trend Tighter.
CDR Counterparty Risk Index fell 5.04bps (-4.18%) to 115.69bps (0 wider - 14 tighter).
CDR Government Risk Index fell 3.08bps (-6.43%) to 44.75bps (with USA protection -4bps to 28bps post TIPS).
DXY weakened 0.14% to 78.64.
Oil rose $0.19 to $68.24.
Gold rose $2.66 to $954.01.
VIX increased 1.19pts to 24.28%.
10Y US Treasury yields rose 6.7bps to 3.73%.
S&P500 Futures gained 0.19% to 979.7.