Daily Credit Summary: May 11 - Brown Stain

Courtesy of www.creditresearch.com

Spreads ended the day wider in the US with HY underperforming IG and US underperforming Europe but the tale of the tape was 3s5s flattening and FINL underperformance. After opening notably gap wider this morning, credit markets rallied most of the morning with Main and XOver dramatically so as we sense some exaggeration by correlation desk hedging. HY never made it into positive territory today and even IG only managed a small compression at its best levels.

Stocks opened weaker after futures slid all night but got help from a modest improvement in EURJPY to get them going up. The low volume rally took equities back to pre-crash levels (almost perfectly rolling over at support) with futures back to 1169 (middle of last Tuesday/Wednesday's closing levels). IG made it back to below the tights of last Wednesday (touching the wides of Tuesday) before bouncing back wider (along with stocks lower). We find it notable that the S&P is 10pts below last Wednesday's close, HY is unch, IG is 5bps tighter, and VIX 4.5pts higher - so a clear derisking from any higher beta assets in favor of quality/safety.

HY never crept into tighter territory and after opening above 600bps, rallied back to unch before leaking wider again as the equity rally stalled. IG and HY underperformed intrinsics with IG narrowing its skew and flattening notably in 3s5s (which was a common thread in many single-name curves too). This curve action made 5Y breadth look relatively positive at 3 tighteners to 2 wideners but the flattening is certainly not a good sign for those looking for rerisking.

In the US, indices underperformed intrinsics (narrowing the skew in IG and widening it in HY back to more 'normal' levels) but one thing is notable from discussions with clients that as vol has risen so much (50-day realized vol has more than doubled in IG over the past two weeks and is up over 70% in HY) so position limits and general index trading has been reduced. In fact we heard several times today that a renewed focus on single-name pairs trading (and curves) was evident (as opposed to index swing trading) - which as you know fits with our perspective also.

Bigger picture, there was clear up-in-quality positioning in US indices (and single-names) with very little active rerisking and a notable rise in dispersion overall. IG is clinging to its 200-day moving average around 100bps (well above its 50-day) while HY sold off up to within a smidge of its 200-day average spread (615bps) before pulling back today ( with yesterday's tight bounce off the 50-day average at 515bps). All major corp indices (IG, Main, XOver, HY) saw 3s5s flattening today in the indices and only XOver was steeper in intrinsics (but only just).

43% of entities agreed on direction across credit and equity today (23% agreeing on improvement and 20% on deterioration) based on 5Y CDS (remember we are not convinced that 5Y is reflective of sentiment currently due to 3s5s flattening). 22% diverged with Equity outperforming credit and 35% diverged with credit outperforming equity. The large number of credit outperformers is somewhat misleading in our humble opinion as the technicals were putting compression pressure on 5Y clearly today against 3Y decompression but we will use this as a starting post. Basic Materials saw equity underperformance relative to credit (as did Finance but 3Y was the driver - sorry to sound like a broken record). Consumer Noncyclicals and Leisure saw credit underperformance relative to equity on average.

Movers in Detail
Spreads were mixed in the US with IG worse, HVOL improving, ExHVOL weaker, and HY selling off. IG trades 9.9bps wide (cheap) to its 50d moving average, which is a Z-Score of 1.2s.d.. At 100.5bps, IG has closed tighter on 94 days in the last 351 trading days (JAN09). The last five days have seen IG converging to its 50d moving average. HY trades 34.2bps wide (cheap) to its 50d moving average, which is a Z-Score of 1.3s.d. and at 561.09bps, HY has closed tighter on 75 days in the last 351 trading days (JAN09).

Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL outperformed but narrowed the skew, ExHVOL intrinsics beat and narrowed the skew, HY's skew widened as it underperformed. The price of investment grade credit fell 0.04% to around 99.98% of par, while the price of high yield credits fell 0.37% to around 97.63% of par. ABX market prices are lower by 0.13% of par or in absolute terms, 0.13%. Volatility (VIX) is down -0.52pts to 28.32%, with 10Y TSY rallying (yield falling) 1.7bps to 3.53% and the 2s10s curve steepened by 1.6bps, as the cost of protection on US Treasuries fell 2.16bps to 39.84bps. 2Y swap spreads widened 2.8bps to 30.81bps, as the TED Spread widened by 0.2bps to 0.28% and Libor-OIS deteriorated 0.7bps to 19.6bps.

The Dollar strengthened with DXY rising 0.49% to 84.567, Oil falling $0.83 to $75.97 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 3.45% today (a 0.59% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $29.48 to $1232.58 as the S&P is down (1150.7 -0.51%) underperforming IG credits (100.5bps -0.04%) while IG, which opened wider at 107bps, outperforms HY credits. IG13 and XOver13 are -1.38bps and -4.5bps respectively while ITRX13 is -1.25bps to 99.5bps.

38% of IG credits are shifting by more than 3bps and 49% of the CDX universe are also shifting significantly (less than the 5 day average of 74%). The number of names wider than the index decreased by 5 to 51 as the day's range rose to 10.75bps (one-week average 17.25bps), between low bid at 98 and high offer at 108.75 and higher beta credits (-1.24%) outperformed lower beta credits (-0.4%).

In IG, tighteners outpaced wideners by around 2-to-1, with 35 credits wider. By sector, CONS saw 37% names wider, ENRGs 35% names wider, FINLs 21% names wider, INDUs 30% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG exFINLs) with the former trading at 90.31bps and the latter at 97.52bps.

Index/Intrinsics Changes
CDR LQD 50 NAIG -1.86bps to 95.01 (11 wider - 36 tighter <> 21 steeper - 29 flatter).

CDR Counterparty Risk Index fell 1.06bps (-0.75%) to 141.07bps (5 wider - 9 tighter).

CDR Government Risk Index fell 4.45bps (-4.8%) to 88.3bps..

CDX14 IG +0.5bps to 100 ($-0.02 to $100) (FV -1.13bps to 105.76) (33 wider - 79 tighter <> 63 steeper - 62 flatter) - Trend Tighter.

CDX14 HVOL -7.25bps to 152.75 (FV -1.83bps to 0) (8 wider - 20 tighter <> 19 steeper - 11 flatter) - Trend Tighter.

CDX14 ExHVOL +2.95bps to 83.34 (FV -0.91bps to 89.35) (25 wider - 70 tighter <> 51 steeper - 44 flatter).

CDX14 HY (30% recovery) Px $-0.37 to $97.63 / +9.6bps to 561 (FV +0.84bps to 538.9) (36 wider - 59 tighter <> 68 steeper - 32 flatter) - Trend Tighter.

LCDX14 (70% recovery) Px $-0.38 to $97.56 / +10.49bps to 315.62 - Trend Tighter.

MCDX14 +2.5bps to 146.5bps. - Trend Tighter.

ITRX13 Main -1.75bps to 99bps (FV+2.16bps to 102.23bps).

ITRX13 Xover -6.5bps to 480bps (FV+19.21bps to 490.09bps).

ITRX13 FINLs +6bps to 136.5bps (FV+4.58bps to 142.64bps).

DXY strengthened 0.37% to 84.47.

Oil fell $0.43 to $76.37.

Gold rose $27.5 to $1230.6.

VIX fell 0.52pts to 28.32%.

10Y US Treasury yields fell 1.7bps to 3.53%.

S&P500 Futures lost 0.54% to 1150.4.

Single-Name Movers
Today's biggest absolute movers in IG were SLM Corp (+15bps), Alcoa Inc. (+12.5bps), and Halliburton Company (+11.5bps) in the wideners, and American International Group, Inc. (-15bps), Metlife, Inc. (-12.5bps), and Hartford Financial Services Group (-10bps) in the tighteners. Today's biggest percentage movers in IG were Halliburton Company (+13.14%), Yum! Brands Inc (+7.5%), and Newell Rubbermaid Inc. (+7.2%) in the wideners, and Union Pacific Corp. (-8.86%), ConocoPhillips (-6.72%), and Eastman Chemical Company (-6.11%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is very bullish with 11 wider to 36 tighter, and 21 steeper to 29 flatter as 10 of the 50 credits have inverted curves. The biggest absolute movers were HSBC Finance Corporation (+5bps), Simon Property Group, L.P. (+3bps), and Carnival Corp. (+2.5bps) in the wideners, and Capital One Financial Corp. (-11.25bps), Citigroup Inc (-10.5bps), and Bank of America Corp. (-7.5bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were Campbell Soup Company (+4.71%), HSBC Finance Corporation (+4.17%), and Wal-Mart Stores Inc. (+3.16%) in the wideners, and Union Pacific Corp. (-8.86%), Capital One Financial Corp. (-7.96%), and Wells Fargo & Company (-6.42%) in the tighteners.

In Main, the biggest percentage movers were Glencore International AG (+13.11%), ArcelorMittal (+12.27%), and Bank of Scotland plc (+12.12%) in the wideners, and Henkel KGaA (-6.32%), Linde AG (-6.09%), and Bayer AG (-5.28%) in the tighteners.The largest absolute movers in Main were Glencore International AG (+27.82bps), ArcelorMittal (+27bps), and Bank of Scotland plc (+20bps) in the wideners, and Iberdrola SA (-5bps), Lanxess AG (-4.5bps), and Repsol YPF SA (-3.75bps) in the tighteners.

The biggest percentage movers in XOver were FCE Bank PLC (+12.73%), International Power Plc (+11.77%), and GKN Holdings Plc (+11.58%) in the wideners, and UPM-Kymmene Oyj (-3.64%), CIR S.p.A. (-2.02%), and Havas SA (-0.53%) in the tighteners.The largest absolute movers in XOver were BCM Ireland Finance Ltd (+170.52bps), ONO Finance, PLC (+71.62bps), and Ineos Group Holdings plc (+64.18bps) in the wideners, and CIR S.p.A. (-10.12bps), UPM-Kymmene Oyj (-10bps), and Havas SA (-1.29bps) in the tighteners.

In the names of the HY index, today's biggest percentage movers were Dole Food Company, Inc. (+22.87%), Aramark Corporation (+13.91%), and ArvinMeritor Inc (+6.61%) in the wideners, and Temple-Inland Inc. (-12.12%), Macy's, Inc. (-8.2%), and Forest Oil Corp. (-6.86%) in the tighteners. The largest absolute movers in HY were Dole Food Company, Inc. (+122.58bps), Aramark Corporation (+79.74bps), and AMR Corp (+74.48bps) in the wideners, and First Data Corp (-39.58bps), K Hovnanian Enterprises, Inc. (-32.71bps), and SunGard Data Systems Inc. (-32.37bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -1.06bps (or -0.75%) to 141.07bps. Royal Bank of Scotland Group Plc (15bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Royal Bank of Scotland Group Plc (8.57%) is the worst (relative) performer. Merrill Lynch & Co., Inc. (-12bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Merrill Lynch & Co., Inc. (-5.94%) is the best (relative) performer.

The CDR Aussie Index rose 1.06bps (or 1.22%) to 88.21bps. RIO Tinto Ltd (7.85bps) is the worst (absolute) performer, whilst RIO Tinto Ltd (8.43%) is the worst (relative) performer. Macquarie Bank Limited (-7.92bps) is the best (absolute) performer, and Macquarie Bank Limited (-5.56%) is the best (relative) performer.

The CDR Asian Index fell -0.12bps (or -0.12%) to 101.18bps. Promise Co Ltd (16.82bps) is the worst (absolute) performer, whilst Sompo Japan Insurance Inc (6.21%) is the worst (relative) performer. State Bank of India (-5.06bps) is the best (absolute) performer, and East Japan Railway Company (-10.59%) is the best (relative) performer.

Comments

[spekulatn]

Daily Credit Summary: May 11 - Brown Stain

Who sharted??

[moneymishap]

no biggie, charmin everywhere.