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
- 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.