Daily Credit Summary: July 30 - Whither The Facts

Tyler Durden's picture

Spreads were tighter in the US as all the indices improved (though leaking wider most of the day from a gap tight open, albeit with HY closing below 800bps). Indices typically underperformed single-names with skews mostly narrower (and this is becoming critical as IG is in mid single-digits and HY skew is very tight - perhaps signaling some room for HY-IG decompression or just single-name protection buying hedged via the index) as IG underperformed but narrowed the skew, HVOL underperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY's skew widened as it underperformed.

The names having the largest impact on IG are General Electric Capital Corp (-40bps) pushing IG 0.3bps tighter, and CIT Group Inc (+39.67bps) adding 0.15bps to IG. HVOL is more sensitive with General Electric Capital Corp pushing it 1.34bps tighter, and CIT Group Inc contributing 0.65bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Valero Energy Corp. (-12bps) pushing the index 0.12bps tighter, and National Rural Utilities Cooperative Finance Corporation (+5.5bps) adding 0.05bps to ExHVOL.

The price of investment grade credit rose 0.12% to around 99.46% of par, while the price of high yield credits rose 0.7475% to around 89.69% of par (intraday peak of $90.1875 or 773bps). ABX market prices are higher (improving) by 0.47% of par or in absolute terms, 0.99%. Broadly speaking, CMBX market prices are higher (improving) by 0.56% of par or in absolute terms, 0.15%. Volatility (VIX) is down -0.21pts to 25.4%, with 10Y TSY rallying (yield falling) 5.1bps to 3.61% and the 2s10s curve flattened by 5.9bps, as the cost of protection on US Treasuries fell 4.64bps to 26.5bps. 2Y swap spreads widened 1.4bps to 37bps, as the TED Spread tightened by 0.2bps to 0.31% and Libor-OIS improved 0.7bps to 28.4bps.

The Dollar weakened with DXY falling 0.39% to 79.322, Oil rising $3.39 to $66.74 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 4.89% today (a 4.96% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $4.13 to $934.13 as the S&P rallies (982 0.73%) outperforming IG credits (113bps 0.12%) while IG, which opened tighter at 111.75bps, underperforms HY credits (note that HY/IG fell below 7x for the first time in months today). IG11 and XOver11 are -0.95bps and -31.5bps respectively while ITRX11 is -6.5bps to 87.75bps.

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), although the IG curve flattened modestly and intrinsics were flatter in 5s7s (even with considerable 2s7s flattening in TSY land).

Dispersion fell -0.3bps 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 increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.

58% of IG credits are shifting by more than 3bps and 63% of the CDX universe are also shifting significantly (more than the 5 day average of 50%). The number of names wider than the index decreased by 1 to 38 as the day's range rose to 6.25bps (one-week average 4.7bps), between low bid at 110 and high offer at 116.25 and higher beta credits (-5.15%) underperformed lower beta credits (-5.24%).

In IG, wideners were outpaced by tighteners by around 9-to-1, with only 9 credits notably wider. By sector, CONS saw 8% names wider, ENRGs 19% names wider, FINLs 10% names wider, INDUs 0% names wider, and TMTs 4% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 90.44bps and the latter at 87.31bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 167.02bps from 158.79bps, but remains below the short-term average of 179.71bps, with the HY/XOver ratio rising to 1.27x, below its 5-day mean of 1.28x. The IG-Main spread decompressed to 25.25bps from 21.5bps, and remains above the short-term average of 22.88bps, with the IG/Main ratio rising to 1.29x, above its 5-day mean of 1.25x.

In the US, non-financials underperformed financials as IG ExFINLs are tighter by 5bps to 87.3bps, with 90 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 7.28bps to 107.37bps, with Banks (worst) tighter by 7.54bps to 147.9bps, Brokers (best) tighter by 7.44bps to 126.51bps, and Finance names tighter by 15.74bps to 909.73bps. Monolines are trading tighter on average by -405.08bps (5.79%) to 3949.33bps. (The most notable shifts today were in the major banks and brokers as the combination of Barney's Bill, ICE EUR cleaing, and HIG earnings seemed to see counterparty risk managers lifting hedges on mst major CDS names - banks/brokers/monolines/insurers - FINLs have majorly outperformed non-financials in the last week or so in iTraxx and in the US).

In IG12 (which lacks the major banks/brokers but contains CIT), FINLs underperformed non-FINLs (2.68% tighter to 5.39% tighter respectively), with the former (IG FINLs) tighter by 8.5bps to 310.9bps, with 16 of the 21 names tighter. The IG CDS market (as per CDX) is 27.9bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (85.08bps), with the bond ETFs underperforming the IG CDS market by around 3.63bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 6bps to 90.44bps (with ITRX FINLs -trending tighter- better by 8.5 to 77bps) and is currently trading tight to its week's range at 0%, between 97.69 to 90.44bps, and is trending tighter. Main LoVOL (sideways trading) is currently trading tight to its week's range at 5.88%, between 68.33 to 63.38bps. ExHVOL underperformed LoVOL as the differential decompressed to -4.99bps from -9.05bps, and remains above the short-term average of -8.67bps. The Main exFINLS to IG ExHVOL differential compressed to 31.76bps from 37.3bps, but remains below the short-term average of 37.99bps.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes
CDR LQD 50 NAIG091 -7.67bps to 133.29 (3 wider - 44 tighter <> 30 steeper - 18 flatter).
CDX12 IG -2.75bps to 113 ($0.12 to $99.46) (FV -5.67bps to 119.6) (9 wider - 106 tighter <> 69 steeper - 56 flatter) - No Trend.
CDX12 HVOL -10bps to 285 (FV -14.9bps to 325.03) (2 wider - 28 tighter <> 18 steeper - 12 flatter) - Trend Tighter.
CDX12 ExHVOL -0.46bps to 58.68 (FV -2.97bps to 63.84) (7 wider - 88 tighter <> 44 steeper - 51 flatter).
CDX11 XO -8.8bps to 308.4 (FV -13.01bps to 376.4) (1 wider - 32 tighter <> 22 steeper - 11 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.75 to $89.6875 / -23.3bps to 789 (FV -25.47bps to 740.59) (12 wider - 79 tighter <> 71 steeper - 21 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.75 to $90.3 / -26.61bps to 530.86 - Trend Tighter.
MCDX12 -5bps to 160bps. - No Trend.
CDR Counterparty Risk Index fell 7.12bps (-6.21%) to 107.53bps (0 wider - 14 tighter).
CDR Government Risk Index fell 2.37bps (-5.25%) to 42.7bps..
DXY weakened 0.39% to 79.32.
Oil rose $3.39 to $66.74.
Gold rose $4.13 to $934.13.
VIX fell 0.21pts to 25.4%.
10Y US Treasury yields fell 4.7bps to 3.62%.
S&P500 Futures gained 0.73% to 982.

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phaesed's picture

I think they're trying to shake the last of the holdouts from the front end of the curve, helping it to flatten and pushing more cash into equities.... That's the beautiful setup for the swan dive we're soon to take :)

Shell Game's picture

Couldn't agree with you more...

EconomicDisconnect's picture

I read the gap up was due to "TRIN" and i was confused why the sequel to the old school film "TRON" would be a market mover.  Any ideas?

Anonymous's picture

Sometimes I wish I had a clue just what the fuck you were talking about.

Then I get over it and thank dog that I fix real, actual, mechanical things for a living....

SloSquez's picture

That's funny.  Honest, but funny.

Anonymous's picture

I think they are saying that Geithner wants us to roll over so he can put his tiny weenie up your ass like he does to his mother. It's a little more technical than that but not much

Anonymous's picture


"Japan's Jobless Rate Rises to a Six-Year High, Damping Hopes of Recovery"
"Japan’s Consumer Prices Tumbled Record 1.7% in June"
"The Nikkei 225 Stock Average climbed 102.97, or 1 percent, to 10,268.18"

whacked's picture

Well Anon quite frankly not worth a mention in view of the fact that manufacturing increased and that 'tick-up' offset any bad news.


Remember that the manufacturing tick up will alst only 2 months. Then time to gloat.

Anonymous's picture

That's your interpretation.

Bloomie's got yet another for the japanese market rise:
"Sony yesterday reported a first-quarter net loss that was less than half analysts’ estimates."

Anonymous's picture

Someone has to hold the bag ;-)

Gilgamesh's picture

Japan unemployment rate comes in worse than expected.  No worries, their economy is smaller than the U.S.  Nothing to see here.


If a tree falls and kills a green shoot, but no media reports it, did it really happen?

Glen's picture

Yeh, how the fuck does that work?

EconomicDisconnect's picture

Could stock be the next bubble again?  I thought it was impossible but it is clear memories of the 2000 bust are distant, and even the drop to the lows this year seem so far are lost in the ether.  Maybe time to load up, why not ride the easy money train until the next derailment?

EconomicDisconnect's picture

do not hold the bag with the dog doodoo and a lighter close at hand.

SloSquez's picture

Gettin there myself.  I did 4 koolaid bongs today, but I puked.

Tod vom Himmel's picture

I dipped in both yesterday and today and stopped out both times, leaving a lot on the table both days. I think those damn HFT computers have it in for me.

Anonymous's picture

With the 50 and 100 MA now above the 200 - it is going up further, maybe anudda ten percent, maybe more. Then the market will be thrown a curveball - not commercial real estate or the flu or anything else being rehashed on tv. Those things will just compound the nasty slider coming down the pike. It always happens as things seem to be on the mend and this time will be no different. All the cheerleaders will shrug and tell the fans not to worry. The smart people will get out first if they ever bought in and the Dow will shoot down 3000 points to retest the March lows. It's that simple. Keep your powder dry and wait until things are cheap to buy.

SloSquez's picture

Much dry powder, but growing antsy / tired.

Ags Nightmare's picture

ED, this is another stock market bubble with fewer bookies. A Fed chairman doesn't sit in front of congress and flat out tell them after a 2500 point 4 month move in the market that interest rates will remain at zero indefinitely. So I'd call this bubble Number 3 or maybe the HFT Bubble.

One thing that is happening is each romp is getting shorter induration but are as equally insane and more brazen than the prior disconnection from realty. A ton of the moves are already priced in or an economic boom is comming and that ain't happening. Won't here anyone on the devil channel dare mention the word "discounting" now.

On top of that, the Wall Street mafia has shrunk to a couple of families controlling all the illegal activity. The key thing is to try to guess when GS decides to hit the mattresses again. This market broke in 1997-2000 when Alan Greenspud and the cnbs pundits continually justified a daily basket of worthless companies going up 50 to 100 points a day until we crashed. This sucker is broke and has been for a decade. We've turned into serial bubble blowers. 

Anonymous's picture

this is a presentation by the author of the book: The Creature from Jekyll Island - A Second Look at the Federal Reserve by G Edward Griffin




Anonymous's picture

Amazingly True ! Thanks.

phaesed's picture

Ahhhh, you're all reading the wrong book. If you want a clearly unadultered look at the ORIGINAL "Secrets of the Federal Reserve" read the version by Eustace Mullins. It was banned shortly after it was put out and removed from the shelves. Thank lord for the internet

phaesed's picture

But thanks for the link :)

Anonymous's picture

Hey Tyler did u ever look into why UBS stopped offering levered ETFs?

My cognitive dissonance's picture

Thanks for the numerical dump T.D.

I'm sorry...but am I'm I the only hetero-guy here.

That is upset, that something recently penatrated Jupiter and not...Uranus.

If you think about it...Uranus really has it coming.

Some useless facts about Uranus are: It's dirty and it has rings around it.

Enuff said.