Daily Credit Summary: October 6 - Aussie Rules, Fisk Drools
Spreads are mixed in the major indices today as single-names lagged any underperformance intraday and credit notably underperformed equities all day. Aside from very early trading tights in IG12/13, the on-the-runs were unable to break yesterday's tights (while SPY managed to gap up and hold well off yesterday's highs). Intraday ranges in IG and HY remained very muted again despite a pick up in volumes (as talk was of elevated activity in rolls and curves once again).
IG12 ended marginally tighter, IG13 wider, HVOL improving, ExHVOL12 and 13 were weaker, XO stronger, and HY rallying (but only a smidge). IG trades 1.5bps tight (rich) to its 50d moving average, which is a Z-Score of -0.2s.d.. At 111bps, IG has closed tighter on only 18 days so far this year (199 trading days). The last five days have seen IG flat to its 50d moving average. Skews were generally wider today as indices underperformed intrinsics although both HVOL12 and 13 were the exception today as ExHVOL was the worst performing index thanks to HVOL's moves.
Only 19.2% of names in IG moved more than their historical vol would imply as higher vol names underperformed lower vol names by -2.2% to -2.96%. IG's vol is around 4.38% per 1 day period, which leaves 98 names higher vol and 27 lower vol than the index.
The names having the largest impact on IG are Textron Financial Corp (-25bps) pushing IG 0.21bps tighter, and CIT Group Inc (+16.5bps) adding 0.07bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 0.85bps tighter, and CIT Group Inc contributing 0.32bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Textron Financial Corp (-25bps) pushing the index 0.27bps tighter, and Fortune Brands Inc. (+3bps) adding 0.03bps to ExHVOL.
The price of investment grade credit rose 0.02% to around 99.53% of par, while the price of high yield credits rose 0.25% to around 95.13% of par. ABX market prices are lower by 0.24% of par or in absolute terms, 0.38%. Broadly speaking, CMBX market prices are lower by 0.93% of par or in absolute terms, 0.27%. Volatility (VIX) is down -1.14pts to 25.65%, with 10Y TSY selling off (yield rising) 3.7bps to 3.26% and the 2s10s curve steepened by 1.4bps, as the cost of protection on US Treasuries fell 0.89bps to 21.5bps. 2Y swap spreads tightened 0.6bps to 34bps, as the TED Spread widened by 2.2bps to 0.22% and Libor-OIS deteriorated 0.2bps to 13.1bps.
The Dollar weakened with DXY falling 0.41% to 76.325, Oil rising $0.59 to $71 (outperforming the dollar as the value of Oil (rebased to the value of gold) fell by 1.57% today (a 0.43% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $24.9 to $1042.2 as the S&P rallies (1048.8 1.2%) outperforming IG credits (111.5bps 0.02%) while IG, which opened tighter at 111bps, underperforms HY credits. IG11 and XOver11 are -4.3bps and -26bps respectively while ITRX11 is -3.19bps to 89.25bps.
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).
Dispersion fell -0.3bps in IG. Broad market dispersion is less than historically expected given current spread levels, pointing to a more sanguine view of credits as investors discriminate less between names, with dispersion increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.
30% of IG credits are shifting by more than 3bps and 50% of the CDX universe are also shifting significantly (less than the 5 day average of 57%). The number of names wider than the index stayed at 41 as the day's range rose to 6bps (one-week average 7.71bps), between low bid at 107.5 and high offer at 113.5 and higher beta credits (-1.84%) underperformed lower beta credits (-2.62%).
In IG, tighteners outpaced wideners by around 4-to-1, with only 22 credits notably wider. By sector, CONS saw 14% names wider, ENRGs 31% names wider, FINLs 48% names wider, INDUs 4% names wider, and TMTs 4% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 96.41bps and the latter at 83.64bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 152.91bps from 147.58bps, but remains below the short-term average of 174.2bps, with the HY/XOver ratio rising to 1.32x, below its 5-day mean of 1.36x. The IG-Main spread compressed to 18.63bps from 19.88bps, but remains below the short-term average of 23.04bps, with the IG/Main ratio falling to 1.2x, below its 5-day mean of 1.26x.
In the US, non-financials outperformed financials as IG ExFINLs are tighter by 2.3bps to 83.6bps, with 80 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 1.87bps to 99.03bps, with Banks (worst) wider by 1.07bps to 132.69bps, Finance names (best) tighter by 12.91bps to 640.83bps, and Brokers tighter by 0.83bps to 129.67bps. Monolines are trading tighter on average by -25.53bps (0.74%) to 4853.24bps.
In IG, FINLs underperformed non-FINLs (0.44% tighter to 2.66% tighter respectively), with the former (IG FINLs) tighter by 1bps to 234.1bps, with 8 of the 21 names tighter. The IG CDS market (as per CDX) is 10bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (101.51bps), with the bond ETFs outperforming the IG CDS market by around 1.86bps (this is impoertant as we note the NAV differentials have gone negative for the first time since the March lows with LQD-TLH much closer to fair than it has been in six-months - perhaps a sign of exuberant flow into corp bond funds).
In Europe, ITRX Main ex-FINLs (underperforming FINLs) widened 1.91bps to 96.41bps (with ITRX FINLs -trending wider- better by 3.25 to 78.75bps) and is currently trading at the wides of the week's range at 100%, between 96.41 to 88.25bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 95.08%, between 71.51 to 65.29bps. ExHVOL underperformed LoVOL as the differential decompressed to 4.3bps from 3.07bps, but remains below the short-term average of 5.74bps. The Main exFINLS to IG ExHVOL differential compressed to 20.91bps from 21.37bps, but remains above the short-term average of 17.87bps.
The CDR Aussie Index rallied 5.27bps (or -5.65%) to 87.95bps. BHP Billiton Ltd (-0.33bps) is the worst (absolute) performer and also the worst (relative) performer. QBE Insurance Group Limited (-15.04bps) is the best (absolute) performer, and CSR Limited (-11.13%) is the best (relative) performer.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG -1.9bps to 82.59 (5 wider - 37 tighter <> 15 steeper - 32 flatter).
CDX13 IG +0.06bps to 102.5 ($0.39 to $99.9) (FV -1.96bps to 97.31) (23 wider - 83 tighter <> 52 steeper - 71 flatter) - No Trend.
CDX13 HVOL -5bps to 200 (FV -4.33bps to 184.13) (7 wider - 21 tighter <> 16 steeper - 14 flatter) - Trend Wider.
CDX13 ExHVOL +1.66bps to 71.71 (FV -1.23bps to 70.77) (16 wider - 79 tighter <> 59 steeper - 36 flatter).
CDX13 HY (30% recovery) Px $+0.25 to $93 / -7.2bps to 688.4 (FV -22.6bps to 627.22) (9 wider - 90 tighter <> 59 steeper - 41 flatter) - Trend Tighter.
CDX12 IG -0.38bps to 111.5 ($0.02 to $99.53) (FV -2.16bps to 107.98) (24 wider - 83 tighter <> 50 steeper - 73 flatter) - No Trend.
CDX12 HVOL -9.1bps to 225.5 (FV -3.91bps to 227.04) (8 wider - 20 tighter <> 14 steeper - 16 flatter) - Trend Tighter.
CDX12 ExHVOL +2.37bps to 75.5 (FV -1.64bps to 72.36) (16 wider - 79 tighter <> 59 steeper - 36 flatter).
CDX11 XO -10.7bps to 259.8 (FV -9.43bps to 292.35) (5 wider - 28 tighter <> 15 steeper - 19 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.12 to $95 / -3.3bps to 632.1 (FV -21.49bps to 610.29) (8 wider - 85 tighter <> 57 steeper - 37 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $-0.01 to $98.35 / +0.29bps to 550.51 - No Trend.
MCDX12 0bps to 84bps. - No Trend.
CDR Counterparty Risk Index fell 2.33bps (-2.31%) to 98.57bps (3 wider - 11 tighter).
CDR Government Risk Index fell 0.71bps (-1.65%) to 42.68bps..
DXYweakened 0.41% to 76.33.
Oil rose $0.59 to $71.
Gold rose $24.9 to $1042.2.
VIX fell 1.14pts to 25.65%.
10Y US Treasury yields rose 3.5bps to 3.26%.
S&P500 Futures gained 1.2% to 1048.8.