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Daily Credit Summary: September 8 - GoldFingered
Spreads were tighter in the US as all the indices improved (with IG making its best day's performance since 6/2/09 and HY outperforming. HY-IG traded back below 700bps, HY-LCDX under 100bps, XOver-Main under 500bps even as intraday ranges remained narrow but gap tighter in HY and IG). Indices generally outperformed intrinsics driving HY skew back below $2 (an arbitrary inflection point for index arbers) but widening the skew in all other liquid indices.
The names having the largest impact on IG are CIT Group Inc (-110.53bps) pushing IG 0.45bps tighter, and Kraft Foods Inc. (+12.21bps - CBRY deal!) adding 0.1bps to IG. HVOL is more sensitive with CIT Group Inc pushing it 1.97bps tighter, and American International Group, Inc. contributing 0.16bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Southwest Airlines Co. (-11bps) pushing the index 0.11bps tighter, and Kraft Foods Inc. (+12.21bps) adding 0.13bps to ExHVOL.
The price of investment grade credit rose 0.26% to around 99.34% of par, while the price of high yield credits rose 1.565% to around 89% of par. ABX market prices are higher (improving) by 0.15% of par or in absolute terms, 1%. Broadly speaking, CMBX market prices are higher (improving) by 0.82% of par or in absolute terms, 0.24%. Volatility (VIX) is up 0.37pts to 25.67%, with 10Y TSY selling off (yield rising) 3.1bps to 3.47% and the 2s10s curve steepened by 2.3bps, as the cost of protection on US Treasuries fell 3.2bps to 23.5bps. 2Y swap spreads tightened 1.7bps to 34.19bps, as the TED Spread tightened by 0.8bps to 0.18% and Libor-OIS improved 1.4bps to 13bps - all these 'safety' instruments remain at ultra-low levels - hardly corresponding to the view that dollar weakness in risk appetite?
The Dollar weakened with DXY falling 1.11% to 77.266, Oil rising $3.27 to $71.29 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 4.84% today (a 3.7% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $0.3 to $994.1 as the S&P rallies (1024.4 1.04%) outperforming IG credits (116bps 0.26%) while IG, which opened tighter at 118bps, underperforms HY credits. IG11 and XOver11 are +13.6bps and -26bps respectively while ITRX11 is -5.71bps to 91.63bps.
Dispersion fell 9.3bps in IG. Broad market dispersion is a little greater than historically expected given current spread levels, indicating more general discrimination among credits than on average over the past year, and dispersion decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.
38% of IG credits are shifting by more than 3bps and 51% of the CDX universe are also shifting significantly (more than the 5 day average of 43%). The number of names wider than the index stayed at 44 as the day's range rose to 4bps (one-week average 4.5bps), between low bid at 114.5 and high offer at 118.5 and higher beta credits (-2.88%) outperformed lower beta credits (-1.96%).
In IG, wideners were outpaced by tighteners by around 5-to-1, with 20 credits wider. By sector, CONS saw 19% names wider, ENRGs 13% names wider, FINLs 10% names wider, INDUs 18% names wider, and TMTs 17% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 92.41bps and the latter at 97.82bps.
Cross Market, we are seeing the HY-XOver spread compressing to 216.57bps from 239.97bps, and remains below the short-term average of 236.35bps, with the HY/XOver ratio falling to 1.37x, below its 5-day mean of 1.39x. The IG-Main spread compressed to 24.37bps from 24.66bps, but remains below the short-term average of 25.95bps, with the IG/Main ratio rising to 1.27x, below its 5-day mean of 1.27x.
In the US, non-financials underperformed financials as IG ExFINLs are tighter by 2.1bps to 97.8bps, with 82 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 5.37bps to 116.16bps, with Brokers (worst) tighter by 4.56bps to 147.7bps, Finance names (best) tighter by 20.91bps to 883.71bps, and Banks tighter by 5.38bps to 150.04bps. Monolines are trading wider on average by 272.16bps (2.33%) to 4940.44bps.
In IG, FINLs outperformed non-FINLs (3.3% tighter to 2.13% tighter respectively), with the former (IG FINLs) tighter by 9.6bps to 283bps, with 18 of the 21 names tighter. The IG CDS market (as per CDX) is 29.8bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (86.24bps), with the bond ETFs underperforming the IG CDS market by around 6.34bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 5.89bps to 92.41bps (with ITRX FINLs -trading sideways- better by 5 to 88.5bps) and is currently trading tight to its week's range at 0%, between 99.35 to 92.41bps, and is trading sideways. Main LoVOL (sideways trading) is currently trading tight to its week's range at 23.45%, between 69.95 to 64.91bps. ExHVOL outperformed LoVOL as the differential compressed to 2.22bps from 2.48bps, but remains below the short-term average of 4.05bps. The Main exFINLS to IG ExHVOL differential compressed to 24.09bps from 25.87bps, and remains below the short-term average of 24.41bps.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes
- CDR LQD 50 NAIG -2.91bps to 98.61 (6 wider - 39 tighter <> 33 steeper - 17 flatter).
- CDX12 IG -6bps to 116 ($0.26 to $99.34) (FV -3.21bps to 127.67) (22 wider - 96 tighter <> 70 steeper - 55 flatter) - Trend Tighter.
- CDX12 HVOL -11.98bps to 267 (FV -9.51bps to 309.37) (1 wider - 28 tighter <> 13 steeper - 17 flatter) - Trend Tighter.
- CDX12 ExHVOL -4.11bps to 68.32 (FV -1.35bps to 74.22) (21 wider - 74 tighter <> 38 steeper - 57 flatter).
- CDX11 XO -19.2bps to 314.6 (FV -4.01bps to 362.01) (6 wider - 27 tighter <> 22 steeper - 10 flatter) - No Trend.
- CDX12 HY (30% recovery) Px $+1.57 to $89 / -49.4bps to 808.6 (FV -16.94bps to 746.05) (12 wider - 79 tighter <> 63 steeper - 30 flatter) - Trend Tighter.
- LCDX12 (65% recovery) Px $+0.6 to $93.8 / -23.17bps to 709.1 - Trend Tighter.
- MCDX12 0bps to 125bps. - No Trend.
- CDR Counterparty Risk Index fell 5.48bps (-4.51%) to 116.04bps (0 wider - 14 tighter).
- CDR Government Risk Index fell 1.27bps (-2.72%) to 45.29bps..
- DXY weakened 1.11% to 77.27.
- Oil rose $3.27 to $71.29.
- Gold fell $0.3 to $994.1.
- VIX increased 0.36pts to 25.67%.
- 10Y US Treasury yields rose 3.3bps to 3.47%.
- S&P500 Futures gained 1.04% to 1024.4.
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*cues the james bond theme
Goldfingered Pussy Galore?
speaking of gold, Barrick Gold just announced that they are eliminating their gold hedges
Nice takedown by the bullion banks today around 11AM. And for what? Just to show they can do it? What turds.
Yes...but at some point all this bad behavior will come back to haunt them.
You may be right. But I'm wondering what they have to gain by this self-destructive behavior. They can't be that stupid.
I have always had to skip these posts because I have never had the brains to wrap my head around all the jargon. But now I am tired of missing out! So does anyone know a beginner's book or site that I can read to better grapple with these one-a-day credit posts? Thanks a million in advance to any replies
- Joe Hill
Interesting stuff about the Chinese & gold.... http://www.telegraph.co.uk/finance/economics/6146957/China-alarmed-by-US...
I'd love to send Odd Job thru the Fed building and let him toss his hat around a little bit.
For all asking for a cheatsheet on how to read this data, see below:
Paragraph 1 – Spreads wider implies credit markets are deteriorating.
In order of creditworthiness the indices that we look at are ExHVOL,
IG, HVOL, XO, and HY so understanding where weakness is relative to
these levels of creditworthiness is useful to judge investors risk
appetite. The intrinsics (which is simply the fair-value of the index)
trades differently to the actual index and the difference is called the
skew. Monitoring the skew and what is driving it tells investors
whether pressure is coming from macro index players (among other
players) or from single-name trends. It is not as easy to arb the index
skew in credit but we note that if intrinsics trade wider than the
index, there is some pressure for index spreads to deteriorate relative
to the underlying single-names (and vice versa).
Paragraph 2 – the credits that had the largest positive and negative impact on the indices mentioned.
Paragraph
3 – Top-down breakdown of relative price changes in the IG (investment
grade) and HY (high yield) markets and comparisons to more commonly
discussed credit indicators.
Paragraph 4 – Cross asset class
breakdown from the top-down. Compares gold, oil, equities, and European
spreads (ITRX and XOver are the strong and weak credit worthiness
indices for Europe).
Paragraph 5 – Insight into term structure
changes in credit and how VIX term structures work with that to provide
short-term trend indications.
Paragraph 6 – Dispersion is a
measure of the distribution of risk in the credit markets. This
dispersion tracks movements in the IG index and describes the
dispersion (think standard deviation changes) to the index (think mean
changes) and what it implies about traders views towards systemic
sentiment (buy or sell it all) or idiosyncratic (name picking and pairs
trades for example).
Paragraph 7 – Measures the relative
activity of the day with number of names moving significantly, daily
range relative to recent activity, and low and high beta performance
(credit traders are interested in this as a signal for who/what is
driving spread movements).
Paragraph 8 – Wideners and tighteners
can be thought of as names that deteriorate and improve respectively
and we track here what the advance-decline activity was on the day
(just as with stocks). This can be thought of as a breadth indicator
for the credit markets. The sector-by-sector breakdown of breadth is
also provided as well as non-financial performance differential between
Europe (ITRX Main exFINLS) and US (IG ExFINLs).
Paragraph 9 –
measures the spread differential between the most risky (HY) and
Crossover (XO) credits in the US and also between the best quality
indices of the US (IG) and Europe (Main).
Paragraph 10 –
non-financial versus financial performance and decomposition of the
financial sector performance. The CDR Counterparty Risk index measures
the risk of the largest OTC derivative counterparties (higher is more
risky).
Paragraph 11 – Breaks down the IG index financial
performance relative to non-financials (which is different as the
financial members of the IG index have different weights than the broad
financial universe). We also decompose the relationship between the
investment grade credit market and the leading bond ETFs providing
investors with insight into potential capital structure arbitrage (or
more simply just trading around the ETFs).
Paragraph 12 –
Discusses relative performance among the major European credit indices.
ITRX Main ExFINLs is the investment grade index in Europe excluding the
financial names. Main LoVOL is the investment grade index in Europe
excluding the highest volatility names and represents the best quality
CDS indices which are tradable.
Index/Intrinsics Changes should
be self-evident – FV stands for Fair Value. As discussed above, if we
see the index improve but FV deteriorate then it gives us important
insight into what/who is driving credit market performance. Wider is
weaker, tighter is stronger from a fundamental perspective. Steeper and
flatter correspond to the term structures of risk and offer valuable
perspective on whether it is the short-term or longer-term that is
receiving or giving up risk.
Thanks Tyler. Helps a lot.
would be nice to have a running tally , chart or graph to track your trends.
Barrick announced today that they are folding on their gold hedges. The amount of gold involved is about 10% of the world's annual production. Seems pretty significant. First of the gold big boys to unwind their shorts.
http://finance.yahoo.com/news/Barrick-Gold-to-eliminate-apf-3397141647.h...
Barrick announced today that they are folding on their gold hedges. The amount of gold involved is about 10% of the world's annual production. Seems pretty significant. First of the gold big boys to unwind their shorts.
http://finance.yahoo.com/news/Barrick-Gold-to-eliminate-apf-3397141647.h...
Thanks for the cheat sheet Tyler. I don't comment much
here, but that helped me under stand what all those a abbreviates mean. Keep up the good work, I might not post
much, but I am reading here every day, though I spend most
of my time on EvilSpeculator.
Thanks a million Tyler. I really do appreciate you explaining this to some punk college kid. Thanks again for your time! Made zerohedge my home page about 2 months ago and am hooked!
-Joe Hill