Daily Credit Summary: November 23 - ExCITed

Spreads tightened marginally today as stocks gapped higher at the open and followed through to new highs in early trading. Credit closed near the wides of the day as it leaked weaker for much of the afternoon with HY just edging IG on the day. Breadth was positive in credit as financials outperformed non-financials and while single-name activity was better than average, the moves were far less positive in both IG and HY than in the 'correctly framed' equity markets. Credit's beta (especially HY) to stocks (and the dollar) are becoming more and more muted as risk asset classes are becoming more discriminated between in our view with equities in a world of their own.

Indices typically underperformed single-names with skews mostly narrower but we do note that IG remains notably rich to fair-value and implicitly (gievn HVOL's relative fairness) ExHVOL13 is very rich to intrinsics.
 
Overnight saw Asian and Aussie equity markets jumping on a weaker dollar as Gold stormed to new highs but credit markets were pretty much unch with some modest outperformance by financials. European financials also improved marginally but Sen-Sub stuck above 60bps and this rolled into US financials improving and curves steepening further. It seems that XOver stuck at around that 520bps level unable to break through even with strong stock markets supporting it although we do see that HY-XOver dipped below 150bps as HY outperformed.
 
It appeared that much of the credit activity today was focused on dealing with CIT's removal from indices and managing risk differentials around that. Off-the-runs tended to outperform (CIT's inverted curve or illiquidity helping) and notably IG12x13 came back close to intrinsics and the two indices pretty much flat to one another (we saw runs in the 0.5-1.5bps range).
 
Indices saw their best levels early on and slipped rather consistently wider all day as HY outperformed IG (all ex-CIT now) but equity betas remain muted to credit and financials were coming off their best levels and stocks and credit moved to lows of the day as the last hour continued before a last 30 minutes ramp back up in stocks that credit did not follow as IG was basically unch and HY a little tighter on the day as both closed near their wides of the day.
 
US credit saw a more systemic compression in spreads with relative performance pretty balanced among our single-name CDS universe across credit quality although in absolute terms HY outperformed IG (with AA+ and above underperforming notably). By industry, Publishers, Advertising, and IT Hardware were the better performers while last week's winners (Gaming and Airlines) joined Transports and Labs & Equipment as the only industries wider on average today (the latter notable as most healthcare-related names appeared to rally in stocks today even after the vote this weekend). Autos and Banks were among the best performers also as homebuilders did outperform but not in a consistent manner.
 
Tighteners outpaced wideners by 4-to-1 across our broad universe with our internal measure of relative strength showing HSY, MGM, SKS, YRCW, and VMC as the largest underperformers while EK, SFD, UIS, SPF, F, and ARM the better performers. Today's biggest absolute movers in IG13 were Toll Brothers, Inc. (+5bps), United Parcel Service Inc. (+4bps), and Kraft Foods Inc. (+3bps) in the wideners, and General Electric Capital Corp (-10.5bps), Xerox Corp. (-9bps), and Hartford Financial Services Group (-7.5bps) in the tighteners. Today's biggest percentage movers in IG were United Parcel Service Inc. (+7.21%), Quest Diagnostics Incorporated (+3.78%), and Kraft Foods Inc. (+3.35%) in the wideners, and International Business Machines Corp. (-12.99%), Walt Disney Company/The (-7.62%), and Computer Sciences Corp. (-7.45%) in the tighteners.
 
In the names of the HY13 index, today's biggest percentage movers were MGM Mirage Inc (+2.38%), Saks Incorporated (+1.97%), and Sabre Holdings Corp (+1.92%) in the wideners, and Residential Capital, LLC (-15.74%), Constellation Brands, Inc. (-4.41%), and CSC Holdings, Inc. (-4.15%) in the tighteners. The largest absolute movers in HY were MGM Mirage Inc (+24.32bps), AMR Corp (+20.22bps), and Energy Future Holdings Corp. (+18.22bps) in the wideners, and Residential Capital, LLC (-454.52bps), Radian Group Inc (-60.94bps), and Realogy Corporation (-54.84bps) in the tighteners. [we suspect the RESCAP outperformance is related to unwinds of suddenly profitable GMAC-RESCAP decompression trades more than any fundamentals on the housing data (since all other builders were wider) and its  compression today dragged HY13 intrinsics around 4-5bps tighter (only) but still accounted for 25% of the improvement in the index today.]
 
Credit undoubtedly went out with far less of a smile on its face than equities today and the nonchalance of the moves in TSYs today seems to have left equities and the dollar as their own little playing field. With this being a potentially quiet week due to Turkey Day we find it tough to read too much into market action but tomorrow will likely bring a clearer picture of credit as CIT is absorbed today and if we continue to diverge, we remain much more convinced by credit's anticipatory nature (than equities anchoring and framing-related biases) as a discounter of economic growth.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes

• CDR LQD 50 NAIG -2.7bps to 91.52 (7 wider - 42 tighter <> 33 steeper - 17 flatter).
• CDX13 IG -0.38bps to 102.25 ($0.02 to $99.9) (FV -1.81bps to 108.42) (19 wider - 99 tighter <> 61 steeper - 62 flatter) - No Trend.
• CDX13 HVOL -1.75bps to 186.25 (FV -2.78bps to 187.74) (3 wider - 25 tighter <> 18 steeper - 12 flatter) - Trend Wider.
• CDX13 ExHVOL +0.05bps to 75.72 (FV -1.51bps to 84.08) (16 wider - 79 tighter <> 52 steeper - 43 flatter).
• CDX13 HY (30% recovery) Px $+0.57 to $93.63 / -16.2bps to 669.9 (FV -9.4bps to 612.67) (14 wider - 74 tighter <> 62 steeper - 32 flatter) - Trend Wider.
• ITRX12 Main -2bps to 84 (FV -1.25bps to 81.24) (13 wider - 100 tighter <> 70 steeper - 55 flatter) - No Trend
• ITRX12 HiVol -3bps to 136 (FV -2.26bps to 127.88) (0 wider - 28 tighter <> 19 steeper - 11 flatter) - No Trend
• ITRX12 LoVol -1.68bps to 67.58 (FV -0.93bps to 66.79) (13 wider - 82 tighter <> 44 steeper - 51 flatter) - Sideways Trading
• ITRX12 XOver -10bps to 521 (FV -15.15bps to 524.9) (3 wider - 41 tighter <> 24 steeper - 21 flatter) - Trend Wider
• LCDX12 (65% recovery) Px $+0.25 to $99.5 / -8.11bps to 564.62 - Trend Wider.
• MCDX12 -2.5bps to 145bps. - Trend Wider.
• CDR Counterparty Risk Index fell 2.82bps (-2.82%) to 97.15bps (1 wider - 13 tighter).
• CDR Government Risk Index fell 0.39bps (-0.69%) to 55.24bps..
• DXY weakened 0.72% to 75.11.
• Oil rose $0.9 to $77.62.
• Gold rose $14.5 to $1165.1.
• VIX fell 1.03pts to 21.19%.
• 10Y US Treasury yields fell 1.1bps to 3.36%.
• S&P500 Futures gained 1.26% to 1103.8.