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Daily Credit Summary: September 22 - Rolling Drones
Spreads were tighter again in the US today as post-roll activity picked up in IG leaving HY to charge tighter still (though not managing to make it back below 600bps) as roll re-positioning and tranche technicals seem to be dominating index activity. The ongoing compression in the widest and riskiest credits saw high beta names dramatically outperform low beta today, single-names outperform indices across the board and HVOL, XO, and HY all outperform IG.
Most indices are underperforming intrinsics as tail names compressed once again and off-the-run indices outperformed on-the-runs (as evidence mounts to support the rumors of mass tranche unwinds - with series 9 compression, high beta smashing tighter as ultra-low spread names widen, and gaps in single-names). IG trades 16bps tight (rich) to its 50d moving average, which is a Z-Score of -2s.d.. At 99.25bps, IG12 has closed tighter on only 1 day so far this year (189 trading days). The last five days have seen IG12 flat to its 50d moving average.
The names having the largest impact on IG12 are CIT Group Inc (-377.56bps) pushing IG 1.89bps tighter, and Aetna Inc (+4.5bps) adding 0.04bps to IG. HVOL is more sensitive with CIT Group Inc pushing it 8.17bps tighter, and MDC Holdings Inc contributing 0.07bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Alcoa Inc. (-20bps) pushing the index 0.22bps tighter, and Aetna Inc (+4.5bps) adding 0.05bps to ExHVOL.
The price of investment grade credit rose 0.02% to around 100.03% of par, while the price of high yield credits rose 1.03% to around 95.25% of par. ABX market prices are higher (improving) by 0.43% of par or in absolute terms, 8.47%. Broadly speaking, CMBX market prices are higher (improving) by 0% of par or in absolute terms, 0%. Volatility (VIX) is down -0.98pts to 23.08%, with 10Y TSY rallying (yield falling) 3.6bps to 3.45% and the 2s10s curve flattened by 0.3bps, as the cost of protection on US Treasuries rose 0bps to 21.5bps. 2Y swap spreads widened 0.6bps to 37.13bps, as the TED Spread tightened by 1.6bps to 0.19% and Libor-OIS improved 1bps to 10.6bps.
The Dollar weakened with DXY falling 0.93% to 76.063, Oil rising $1.84 to $71.55 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.5% today (a 1.71% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $11.3 to $1015 as the S&P rallies (1066.6 0.58%) outperforming IG credits (99.25bps 0.02%) while IG, which opened tighter at 97bps, underperforms HY credits. IG11 and XOver11 are -4.4bps and -31bps respectively while ITRX11 is -3.5bps to 81bps.
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), and additionally the ratio has dropped below 0.9x which is exceptionally bearish for stocks and spreads.
Dispersion fell 30.4bps in IG. 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 60% of the CDX universe are also shifting significantly (more than the 5 day average of 51%). The number of names wider than the index decreased by 2 to 44 as the day's range fell to 3.75bps (one-week average 5.6bps), between low bid at 96.25 and high offer at 100 and higher beta credits (-5.71%) outperformed lower beta credits (-3.16%).
In IG, wideners were outpaced by tighteners by around 20-to-1, with only 6 credits wider. By sector, CONS saw 0% names wider, ENRGs 6% names wider, FINLs 5% names wider, INDUs 14% names wider, and TMTs 0% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 83.13bps and the latter at 79.06bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 133.85bps from 130.55bps, but remains above the short-term average of 122.09bps, with the HY/XOver ratio rising to 1.27x, above its 5-day mean of 1.23x. The IG-Main spread decompressed to 17.75bps from 13.13bps, and remains above the short-term average of 16.64bps, with the IG/Main ratio rising to 1.22x, above its 5-day mean of 1.2x.
In the US, non-financials underperformed financials as IG ExFINLs are tighter by 3.7bps to 79.1bps, with 84 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 2.84bps to 94.94bps, with Brokers (worst) tighter by 4.08bps to 118.17bps, Finance names (best) tighter by 63.88bps to 618.87bps, and Banks tighter by 4.32bps to 123.04bps. Monolines are trading tighter on average by -511.3bps (12.41%) to 2874.77bps.
In IG, FINLs (thanks almost totally to the tail names) outperformed non-FINLs (8.6% tighter to 4.42% tighter respectively), with the former (IG FINLs) tighter by 20.3bps to 215.9bps, with 20 of the 21 names tighter. The IG CDS market (as per CDX) is 18.3bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (80.94bps), with the bond ETFs outperforming the IG CDS market by around 0.37bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 5.25bps to 83.13bps (with ITRX FINLs -trading sideways- better by 4 to 75bps) and is currently trading tight to its week's range at 0%, between 88.8 to 83.13bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading tight to its week's range at -0.05%, between 65.1 to 58.4bps. ExHVOL underperformed LoVOL as the differential decompressed to 2.72bps from -3.41bps, and remains above the short-term average of 0.85bps. The Main exFINLS to IG ExHVOL differential compressed to 22.01bps from 26.76bps, and remains below the short-term average of 22.23bps.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes
CDR LQD 50 NAIG -4.13bps to 78.3 (3 wider - 43 tighter <> 23 steeper - 25 flatter).
CDX13 IG -0.38bps to 91.5 ($0.34 to $100.35) (FV -4.38bps to 91.8) (5 wider - 105 tighter <> 53 steeper - 71 flatter) - Trend Tighter.
CDX13 HVOL -3bps to 190 (FV -9.68bps to 174.96) (1 wider - 29 tighter <> 13 steeper - 17 flatter) - Trend Tighter.
CDX13 ExHVOL +0.45bps to 60.39 (FV -2.75bps to 66.35) (4 wider - 91 tighter <> 55 steeper - 40 flatter).
CDX12 IG -0.5bps to 99.13 ($0.02 to $100.04) (FV -6.43bps to 101.29) (5 wider - 105 tighter <> 55 steeper - 69 flatter) - No Trend.
CDX12 HVOL 0bps to 220 (FV -17.94bps to 212.31) (1 wider - 29 tighter <> 14 steeper - 16 flatter) - Trend Wider.
CDX12 ExHVOL -0.66bps to 60.96 (FV -2.97bps to 67.93) (4 wider - 91 tighter <> 54 steeper - 41 flatter).
CDX11 XO -9bps to 267.2 (FV -11.6bps to 282.46) (3 wider - 30 tighter <> 17 steeper - 17 flatter) - Trend Wider.
CDX12 HY (30% recovery) Px $+1.03 to $95.25 / -28.7bps to 625.8 (FV -28.49bps to 573.68) (5 wider - 86 tighter <> 74 steeper - 19 flatter) - No Trend.
LCDX12 (65% recovery) Px $+0.85 to $98.9 / -26.8bps to 533.44 - Trend Tighter.
MCDX12 -1bps to 95bps. - No Trend.
CDR Counterparty Risk Index fell 2.84bps (-2.91%) to 94.94bps (1 wider - 13 tighter).
CDR Government Risk Index rose 0.24bps (0.58%) to 41.98bps..
DXY weakened 0.93% to 76.06.
Oil rose $1.84 to $71.55.
Gold rose $11.3 to $1015.
VIX fell 0.98pts to 23.08%.
10Y US Treasury yields fell 3.8bps to 3.45%.
S&P500 Futures gained 0.58% to 1066.6.
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Dont worry Kansas Supreme Court has just made 60 million Mortgages worthless!
http://www.kscourts.org/Cases-and-Opinions/opinions/ctapp/2008/20080912/...
I thought the military had the most alphabet soup.
Tyler, you're a machine. We're all matrix'd in.
Riddle me this: why has the roll from IG12/13 not compressed through parity yet? M, JCP, MSCO and let's not forget CIT are all riping in but the roll is still 7-8?!? I know that the signles lag a bit, but I think I smell yet another way for the street to make a quick risk-free buck.