Daily Credit Summary: November 10 - Basel Tov
Spreads were mixed to slightly tighter in the major indices today despite negative breadth in single-names. HY outperformed IG as both indices saw inside days amid low volumes pre-holiday tomorrow. Financials outperformed non-financials but the financials were off their best levels by the close (as we suspect some concerns over Bair's Basel II Bumblings started to be taken seriously).
In the broader CDS universe, wideners outpaced tighteners by 3-to-2 with a notable split across credit quality as distressed (CCC+ and below) outperforming and 'safe' A- and above underperforming on average. This trend became more exaggerated as the day carried on. By sector, Gaming names remained solid performers (perhaps some rerisking on the MGM auction or the pick up in Las Vegas gaming revenues), but Sports & Rec helped drag the broad Leisure sector wider on average.
Cable names outperformed helping the Media sector improve notably today as the Homebuilders helped drag non-cyclicals tighter on the day. Capital Goods (construction machinery and business supplies worst) and Healthcare were the worst performers on the day as Energy and Utilities saw some buying with the Independent producers doing well.
A trend we noted intraday was the gradual weakening from early strength among the apparel names as well as a bifurcation between banks and REITs (the latter underperforming) but across the broad universe markets were pretty balanced and relatively quiet ahead of tomorrow's holiday.
The MGM LCDS auction settled today at $58.5 which is one of the lowest LCDS auctions on our records and slightly lower than the $60 levels we heard in the last few days (seems like most had managed their CLO exposure).
One notable divergence was the gap between the Jan2010 and Jan 2011 implied correlation (S&P vol not credit-based) which implies smoother sailing into year-end with any fear of a crash being pushed off to next year (maybe another contrarian signal?).
The names having the largest impact on IG are American International Group, Inc. (-22.13bps) pushing IG 0.14bps tighter, and Cardinal Health Inc. (+8.5bps) adding 0.07bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 0.62bps tighter, and Alcoa Inc. contributing 0.18bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both FirstEnergy Corp (-9.75bps) pushing the index 0.1bps tighter, and Cardinal Health Inc. (+8.5bps) adding 0.09bps to ExHVOL.
The price of investment grade credit rose 0% to around 100.07% of par, while the price of high yield credits rose 0.25% to around 93.88% of par. ABX market prices are lower by 0.03% of par or in absolute terms, 0.27%. Broadly speaking, CMBX market prices are lower by 0.39% of par or in absolute terms, 0.07%. Volatility (VIX) is down -0.31pts to 22.84%, with 10Y TSY rallying (yield falling) 1.3bps to 3.48% and the 2s10s curve steepened by 0.4bps, as the cost of protection on US Treasuries rose 1.17bps to 24.165bps. 2Y swap spreads tightened 0.3bps to 33.06bps, as the TED Spread tightened by 1.2bps to 0.22% and Libor-OIS deteriorated 0.1bps to 12.7bps.
The Dollar strengthened with DXY rising 0.02% to 75.04, Oil falling $0.3 to $79.13 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 0.56% today (a 0.36% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $2.03 to $1105.83 as the S&P rallies (1091.8 0.01%) outperforming IG credits (98.5bps 0%) while IG, which opened wider at 98.88bps, underperforms HY credits. IG11 and XOver11 are -0.25bps and +2.5bps respectively while ITRX11 is +0.13bps to 84.13bps.
The majority of credit curves flattened 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).
In IG13, wideners outpaced tighteners by around 2-to-1, with 71 credits wider. By sector, CONS saw 79% names wider, ENRGs 35% names wider, FINLs 15% names wider, INDUs 77% names wider, and TMTs 50% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG13 exFINLs) with the former trading at 86.57bps and the latter at 87.75bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG +0.04bps to 87.26 (29 wider - 14 tighter <> 15 steeper - 33 flatter).
CDX13 IG 0bps to 98.5 ($0 to $100.07) (FV +0.2bps to 103.99) (71 wider - 32 tighter <> 54 steeper - 67 flatter) - Trend Tighter.
CDX13 HVOL +1bps to 186 (FV -1.51bps to 186.08) (11 wider - 15 tighter <> 13 steeper - 17 flatter) - Trend Tighter.
CDX13 ExHVOL -0.32bps to 70.87 (FV +0.72bps to 78.85) (60 wider - 35 tighter <> 54 steeper - 41 flatter).
CDX13 HY (30% recovery) Px $+0.25 to $93.88 / -7.1bps to 663.4 (FV -1.64bps to 624.06) (47 wider - 40 tighter <> 56 steeper - 41 flatter) - Trend Tighter.
ITRX12 Main +0.13bps to 84.13 (FV -1.16bps to 82.48) (15 wider - 95 tighter <> 55 steeper - 65 flatter) - No Trend
ITRX12 HiVol +1bps to 138 (FV -2.02bps to 132.61) (3 wider - 23 tighter <> 10 steeper - 19 flatter) - Trend Tighter
ITRX12 LoVol -0.14bps to 67.12 (FV -0.9bps to 66.98) (12 wider - 83 tighter <> 50 steeper - 45 flatter) - Sideways Trading
ITRX12 XOver +2.5bps to 512.75 (FV -8.83bps to 523.05) (11 wider - 25 tighter <> 21 steeper - 21 flatter) - Trend Tighter
LCDX12 (65% recovery) Px $-0.13 to $98.6 / +4.2bps to 575.21 - Trend Tighter.
MCDX12 +15bps to 127bps. - Trend Wider.
CDR Counterparty Risk Index fell 1.42bps (-1.48%) to 94.71bps (5 wider - 9 tighter).
CDR Government Risk Index rose 0.09bps (0.19%) to 49.4bps..
DXY strengthened 0.02% to 75.04.
Oil fell $0.3 to $79.13.
Gold rose $2.03 to $1105.83.
VIX fell 0.31pts to 22.84%.
10Y US Treasury yields fell 1.3bps to 3.48%.
S&P500 Futures gained 0.01% to 1091.8