Daily Credit Summary: September 15 - Nothing To See Here

Spreads were mixed in the US with most indices tighter (reaching 2009 tights) as ExHVOL underperformed as high beta compression smashed low beta names. IG trades 15.2bps tight (rich) to its 50d moving average, which is a Z-Score of -1.5s.d.. At 104.25bps, IG has not closed tighter this year (184 trading days) and is back to mid June on-the-run levels for IG. The last five days have seen IG diverging from its 50d moving average.

Indices typically underperformed single-names with skews mostly narrower as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO underperformed but compressed the skew, and HY outperformed but narrowed the skew.

29.6% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by -3.99% to -3.24%. 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 CIT Group Inc (-107.96bps) pushing IG 0.48bps tighter, and XTO Energy Inc (+1.5bps) adding 0.01bps to IG. HVOL is more sensitive with CIT Group Inc pushing it 2.1bps tighter, and Toll Brothers, Inc. contributing 0bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Hartford Financial Services Group (-20bps) pushing the index 0.21bps tighter, and XTO Energy Inc (+1.5bps) adding 0.02bps to ExHVOL.

The price of investment grade credit rose 0.11% to around 99.82% of par, while the price of high yield credits rose 1.625% to around 94.38% of par. ABX market prices are higher (improving) by 0.46% of par or in absolute terms, 1.32%. Broadly speaking, CMBX market prices are higher (improving) by 1% of par or in absolute terms, 0.31%. Volatility (VIX) is down -0.44pts to 23.42%, with 10Y TSY selling off (yield rising) 2.3bps to 3.45% and the 2s10s curve steepened by 0.7bps, as the cost of protection on US Treasuries rose 1.5bps to 24bps. 2Y swap spreads widened 0.9bps to 34.61bps, as the TED Spread widened by 0.6bps to 0.17% and Libor-OIS improved 0.6bps to 11.2bps.

The Dollar weakened with DXY falling 0.23% to 76.517, Oil rising $1.64 to $70.5 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.66% today (a 2.15% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $7.08 to $1007.28 as the S&P rallies (1050.3 0.23%) outperforming IG credits (104.25bps 0.11%) while IG, which opened tighter at 106.5bps, underperforms HY credits. IG11 and XOver11 are -2bps and -10.75bps respectively while ITRX11 is -0.5bps to 86bps.

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), and additionally the ratio has dropped below 0.9x which is exceptionally bearish for stocks and spreads.

Dispersion fell 11.4bps in IG. Broad market dispersion is in line with historical expectations given current spread levels, showing investors fairly well balanced, with dispersion decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.

50% of IG credits are shifting by more than 3bps and 59% of the CDX universe are also shifting significantly (more than the 5 day average of 52%). The number of names wider than the index stayed at 45 as the day's range fell to 4.5bps (one-week average 5.55bps), between low bid at 103 and high offer at 107.5 and higher beta credits (-4.86%) outperformed lower beta credits (-3.33%).

In IG, wideners were outpaced by tighteners by around 20-to-1, with only 10 credits notably wider (pretty mcuh all sub 50bps spread names). By sector, CONS saw 11% names wider, ENRGs 19% names wider, FINLs 0% names wider, INDUs 0% names wider, and TMTs 13% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 87.38bps and the latter at 85.38bps.

Cross Market, we are seeing the HY-XOver spread compressing to 104.57bps from 140.08bps, but remains below the short-term average of 166.18bps, with the HY/XOver ratio falling to 1.19x, below its 5-day mean of 1.29x. The IG-Main spread compressed to 18.25bps from 20.25bps, but remains below the short-term average of 22.71bps, with the IG/Main ratio falling to 1.21x, below its 5-day mean of 1.26x.

In the US, non-financials underperformed financials as IG ExFINLs are tighter by 3.7bps to 85.4bps, with 87 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 7.71bps to 101.17bps, with Banks (worst) tighter by 7.86bps to 130.69bps, Brokers (best) tighter by 12bps to 133.5bps, and Finance names tighter by 46.82bps to 690.53bps. Monolines are trading tighter on average by -859.18bps (11.71%) to 3949.12bps.

In IG, FINLs outperformed non-FINLs (5.23% tighter to 4.17% tighter respectively), with the former (IG FINLs) tighter by 13.2bps to 239bps, with 19 of the 21 names tighter. The IG CDS market (as per CDX) is 20.9bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (83.39bps), with the bond ETFs outperforming the IG CDS market by around 0.28bps.

In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 0.25bps to 87.38bps (with ITRX FINLs -trading sideways- better by 1.5 to 80.5bps) and is currently trading tight to its week's range at 12.41%, between 92.25 to 86.69bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading in the middle of the week's range at 49.95%, between 65.9 to 62.84bps. ExHVOL underperformed LoVOL as the differential decompressed to 0.17bps from -2.33bps, but remains below the short-term average of 1.11bps. The Main exFINLS to IG ExHVOL differential compressed to 22.84bps from 24.54bps, and remains below the short-term average of 23.14bps.

The Emerging Market index is 4.1% less risky (12.2bps tighter) to 282.6bps. EM10 (Trend Tighter) is currently trading tight to its week's range at 0.12%, between 300.5 to 282.6bps. The HY-EM spread compressed to 367.45bps from 401.5bps, but remains below the short-term average of 438.91bps, with the HY/EM ratio falling to 2.3x, below its 5-day mean of 2.48x.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes
CDR LQD 50 NAIG -5.11bps to 86.2 (3 wider - 44 tighter <> 38 steeper - 12 flatter).
CDX12 IG -2.5bps to 104.25 ($0.11 to $99.82) (FV -5.19bps to 110.34) (10 wider - 107 tighter <> 81 steeper - 44 flatter) - Trend Tighter.
CDX12 HVOL -15bps to 230 (FV -13.06bps to 233.87) (0 wider - 29 tighter <> 21 steeper - 9 flatter) - Trend Tighter.
CDX12 ExHVOL +1.45bps to 64.54 (FV -2.84bps to 73.45) (10 wider - 85 tighter <> 35 steeper - 60 flatter).
CDX11 XO -10.3bps to 273 (FV -21.08bps to 304.79) (3 wider - 30 tighter <> 22 steeper - 12 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+1.63 to $94.38 / -46.3bps to 650 (FV -44.3bps to 619.65) (4 wider - 89 tighter <> 71 steeper - 23 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+1.1 to $97.35 / -37.1bps to 583.03 - Trend Tighter.
MCDX12 -4bps to 101bps. - Trend Tighter.
CDR Counterparty Risk Index fell 7.27bps (-6.68%) to 101.6bps (0 wider - 14 tighter).
CDR Government Risk Index fell 0.14bps (-0.34%) to 41.26bps..
DXY weakened 0.23% to 76.52.
Oil rose $1.64 to $70.5.
Gold rose $7.08 to $1007.28.
VIX fell 0.44pts to 23.42%.
10Y US Treasury yields rose 2.6bps to 3.45%.
S&P500 Futures gained 0.23% to 1050.3.

Comments

[Anonymous]

thanks for the credit summary posts. Keep it up

[McGriffen]

This is most useful...any augmentation that included daily issuance summary would just make it better.

I heard the "Citi that don't slumber" issued some new debt.  and by new debt, that which carries the FDIC blessing...short maturities.

So much for the hullabaloo about paying the TARP back to rid themselves of the "man"

[Gilgamesh]

Was on a call last week for a muni bond that just defaulted.  GS, DB, FITB, Federated, others were on asking a lot of questions.  They own a lot more of this type of debt that will go bad in the next year.  Fairly new issue, too.

[McGriffen]

Interesting...what was the issue type (revenue bonds, per chance)?  As a former contestant in muni space, i casually followed it for 7-8 yrs

Earlier in 2009, when the craziness reached its zenith I'd thought that >AA- GO bonds would be a good play; given how wide the yields were quoted to UST.  California GO...perhaps not as much

[Gilgamesh]

Yes, is all I should say to your question for now.