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Daily Credit Summary: September 16 - Cover Charge

Tyler Durden's picture


Spreads were tighter in all the major indices today as new 2009/contract tights were seen everywhere with the high beta compression, roll compression, and curve steepening trend continuing - although HY and IG both ended well off their best levels of the day (even as stocks closed at their highs). IG12 moved back above Par and HY12 was below 600bps intraday. The drop in dispersion among single-names seems to signal traders are unwilling to step in to the high beta screamers pre-roll and we feel stringly that the steepening/roll compression has moved index curves in the off-the-runs way rich and way steep compared to intrinsics and offer some pretty cheap options for those who are not buying the recovery in refi risk.

IG trades 20.5bps tight (rich) to its 50d moving average, which is a Z-Score of -2.1s.d.. At 98bps, IG has not closed tighter this year (and based on intrinsics we are back to Aug/Sep08 levels). The last five days have seen IG diverging from its 50d moving average which is now at 118bps.

Indices typically underperformed single-names with skews widening in general as roll technicals are exaggerated by this rally and very few seem willing to step in front of the flodd pre-roll.

The names having the largest impact on IG are American International Group, Inc. (-87.74bps) pushing IG 0.59bps tighter, and AT&T Mobility LLC (+1bps) adding 0.01bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 2.54bps tighter, and MDC Holdings Inc contributing 0bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Hartford Financial Services Group (-35bps) pushing the index 0.38bps tighter, and AT&T Mobility LLC (+1bps) adding 0.01bps to ExHVOL.

The price of investment grade credit rose 0.26% to around 100.07% of par, while the price of high yield credits rose 0.62% to around 95% of par. ABX market prices are higher (improving) by 0.99% of par or in absolute terms, 2.48%. Broadly speaking, CMBX market prices are higher (improving) by 0% of par or in absolute terms, 0%. Volatility (VIX) is up 0.27pts to 23.69%, with 10Y TSY selling off (yield rising) 1.7bps to 3.47% and the 2s10s curve flattened by 3.2bps, as the cost of protection on US Treasuries fell 1.82bps to 21.75bps. 2Y swap spreads tightened 0.5bps to 34.19bps, as the TED Spread widened by 3.2bps to 0.2% and Libor-OIS improved 0.1bps to 11.2bps.

The Dollar weakened with DXY falling 0.41% to 76.231, Oil rising $1.43 to $72.36 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.08% today (a 1.61% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $9.33 to $1016.88 as the S&P rallies (1068 1.69%) outperforming IG credits (98.25bps 0.26%) while IG, which opened tighter at 101.5bps, underperforms HY credits. IG11 and XOver11 are -4.75bps and -21.75bps respectively while ITRX11 is -4bps to 82bps.

Dispersion fell 10.8bps in IG for the umpteenth day in a row. Broad market dispersion is in line with historical expectations given current spread levels, showing investors fairly well balanced, with dispersion increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.

50% of IG credits are shifting by more than 3bps and 64% of the CDX universe are also shifting significantly (more than the 5 day average of 56%). The number of names wider than the index stayed at 45 as the day's range rose to 5.5bps (one-week average 5.65bps), between low bid at 96.5 and high offer at 102 and higher beta credits (-7.58%) outperformed lower beta credits (-4.58%).

In IG, wideners were outpaced by tighteners by around 30-to-1, with only 5 credits notably wider. By sector, CONS saw no names wider, ENRGs no names wider, FINLs 10% names wider, INDUs 7% names wider, and TMTs 4% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG12 exFINLs) with the former trading at 83.25bps and the latter at 79.92bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 109.31bps from 104.82bps, but remains below the short-term average of 148.5bps, with the HY/XOver ratio rising to 1.21x, below its 5-day mean of 1.26x. The IG-Main spread compressed to 16.25bps from 18.38bps, but remains below the short-term average of 21.36bps, with the IG/Main ratio falling to 1.2x, below its 5-day mean of 1.25x.

In the US, non-financials underperformed financials as IG ExFINLs are tighter by 5.4bps to 79.9bps, with 96 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 10.37bps to 91.09bps, with Finance names (worst) tighter by 46.32bps to 642.81bps, Brokers (best) tighter by 22.5bps to 111.83bps, and Banks tighter by 13.89bps to 116.62bps. Monolines are trading tighter on average by -684.08bps (11.45%) to 3169.7bps.

In IG, FINLs outperformed non-FINLs (6.83% tighter to 6.32% tighter respectively), with the former (IG FINLs) tighter by 16.4bps to 223.7bps, with 18 of the 21 names tighter. The IG CDS market (as per CDX) is 17.4bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (80.88bps), with the bond ETFs underperforming the IG CDS market by around 3.62bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 4.13bps to 83.25bps (with ITRX FINLs -trending tighter- better by 3.5 to 77bps) and is currently trading tight to its week's range at 0%, between 88.81 to 83.25bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading tight to its week's range at -0.1%, between 65.42 to 61.32bps. ExHVOL outperformed LoVOL as the differential compressed to -1.51bps from 1.92bps, and remains below the short-term average of 0.64bps. The Main exFINLS to IG ExHVOL differential decompressed to 23.45bps from 21.09bps, and remains above the short-term average of 22.87bps.

Commentary compliments of

Index/Intrinsics Changes
CDR LQD 50 NAIG -7.82bps to 78.07 (3 wider - 45 tighter <> 33 steeper - 17 flatter).
CDX12 IG -6.13bps to 98.25 ($0.26 to $100.07) (FV -7.07bps to 103.39) (5 wider - 112 tighter <> 96 steeper - 29 flatter) - Trend Tighter.
CDX12 HVOL -5bps to 220 (FV -15.65bps to 218.06) (0 wider - 29 tighter <> 25 steeper - 5 flatter) - Trend Tighter.
CDX12 ExHVOL -6.49bps to 59.8 (FV -4.5bps to 69) (5 wider - 90 tighter <> 24 steeper - 71 flatter).
CDX11 XO -13.5bps to 255 (FV -23.14bps to 285.43) (1 wider - 32 tighter <> 23 steeper - 11 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.75 to $95.13 / -20.9bps to 629.2 (FV -42.34bps to 582.05) (0 wider - 94 tighter <> 76 steeper - 18 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.65 to $98 / -21.17bps to 561.95 - Trend Tighter.
MCDX12 -6bps to 95bps. - Trend Tighter.
CDR Counterparty Risk Index fell 10.35bps (-10.2%) to 91.1bps (0 wider - 14 tighter).
CDR Government Risk Index fell 1.77bps (-4.29%) to 39.48bps..
DXY weakened 0.41% to 76.23.
Oil rose $1.47 to $72.4.
Gold rose $9.33 to $1016.88.
VIX increased 0.27pts to 23.69%.
10Y US Treasury yields rose 1.5bps to 3.47%.
S&P500 Futures gained 1.69% to 1068.


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Wed, 09/16/2009 - 17:23 | Link to Comment Ducky
Ducky's picture

Rosie is coming up on cnbc fast money today

Wed, 09/16/2009 - 17:31 | Link to Comment Anonymous
Wed, 09/16/2009 - 17:33 | Link to Comment SWRichmond
SWRichmond's picture

They sure are having fun pushing crude around, aren't they?  I think the financial media has given up trying to explain it.

Wed, 09/16/2009 - 17:35 | Link to Comment lizzy36
lizzy36's picture

check out nat gas....

Wed, 09/16/2009 - 21:27 | Link to Comment Anonymous
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