Daily Credit Summary: September 9 - Kaiser Souzai
Spreads were tighter in the US as all the indices improved. IG trades 7.7bps tight (rich) to its 50d moving average, which is a Z-Score of -0.7s.d.. At 114.25bps, IG has closed tighter on only 11 days so far this year (180 trading days) and the last five days have seen IG diverging (bullishly) from its 50d moving average (clsoing at its tightest since 08/10). Indices generally outperformed intrinsics with skews tighter in HY, XO, and HVOL and wider in IG and ExHVOL. Spreads ended the day generally improved as tighteners outpaced wideners by around two-to-one with CONSumers systemically underperforming the rest of the non-financial names (especially noteworthy after such a significant rerisking in last week's DTCC data for the sector) while financials outperformed led by general finance names.
Only 8.8% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by -1.11% to 0.93%. 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 Textron Financial Corp (-37.5bps) pushing IG 0.3bps tighter, and Kraft Foods Inc. (+11bps - now 23bps in 2 days and significantly impacting super senior spread hedging) adding 0.09bps to IG. HVOL is more sensitive with Textron Financial Corp pushing it 1.31bps tighter, and Macy's, Inc. contributing 0.32bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both National Rural Utilities Cooperative Finance Corporation (-19.78bps) pushing the index 0.2bps tighter, and Kraft Foods Inc. (+11bps) adding 0.12bps to ExHVOL.
The price of investment grade credit rose 0.13% to around 99.46% of par, while the price of high yield credits rose 0.69% to around 89.69% of par. ABX market prices are lower by 0.01% of par or in absolute terms, 0.07%. Broadly speaking, CMBX market prices are higher (improving) by 0% of par or in absolute terms, 0%. Volatility (VIX) is down -1.3pts to 24.32%, with 10Y TSY rallying (yield falling) 0.9bps to 3.48% and the 2s10s curve steepened by 0.7bps, as the cost of protection on US Treasuries fell 1.35bps to 22.5bps. 2Y swap spreads tightened 0.8bps to 33.25bps, as the TED Spread tightened by 1.6bps to 0.16% and Libor-OIS deteriorated 0.9bps to 13.2bps.
The Dollar weakened with DXY falling 0.43% to 76.993, Oil rising $0.66 to $71.76 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.37% today (a 0.5% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $4.3 to $991.1 as the S&P rallies (1032.5 0.72%) outperforming IG credits (113bps 0.13%) while IG, which opened wider at 116.5bps, underperforms HY credits. IG11 and XOver11 are -3.45bps and -11.75bps respectively while ITRX11 is -3.62bps to 87.88bps.
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 7.3bps 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 increasing more than expected today indicating a less systemic and more idiosyncratic spread widening/tightening at the tails.
Only 29% of IG credits are shifting by more than 3bps and 41% of the CDX universe are also shifting significantly (more than the 5 day average of 41%). The number of names wider than the index increased by 1 to 45 as the day's range rose to 5bps (one-week average 4.2bps), between low bid at 112 and high offer at 117 and higher beta credits (-1.11%) outperformed lower beta credits (-0.46%) - which we wonder how much super senior capital stricture hedging is affecting - i.e. buying tight-name protection to cover risk and selling wide name protection to pay for it.
In IG, wideners were outpaced by tighteners by around 2-to-1, with only 35 credits notably wider. By sector, CONS saw 51% names wider, ENRGs 6% names wider, FINLs 10% names wider, INDUs 29% names wider, and TMTs 22% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 88.73bps and the latter at 97.05bps.
Cross Market, we are seeing the HY-XOver spread compressing to 206.87bps from 216.38bps, but remains below the short-term average of 230.88bps, with the HY/XOver ratio falling to 1.36x, below its 5-day mean of 1.38x. The IG-Main spread decompressed to 25.12bps from 24.5bps, but remains below the short-term average of 25.56bps, with the IG/Main ratio rising to 1.29x, above its 5-day mean of 1.27x.
In the US, non-financials underperformed financials as IG ExFINLs are tighter by 0.8bps to 97.1bps, with 42 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 0.89bps to 115.28bps, with Brokers (worst) tighter by 0.17bps to 155.17bps, Finance names (best) tighter by 22.12bps to 865.74bps, and Banks tighter by 2.57bps to 148.4bps. Monolines are trading wider on average by 9.84bps (0.66%) to 4938.57bps.
In IG, FINLs outperformed non-FINLs (2.54% tighter to 0.77% tighter respectively), with the former (IG FINLs) tighter by 7.2bps to 277.9bps, with 16 of the 21 names tighter. The IG CDS market (as per CDX) is 26.8bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (86.22bps), with the bond ETFs underperforming the IG CDS market by around 2.99bps.
In Europe, ITRX Main ex-FINLs (underperforming FINLs) rallied 3.52bps to 88.73bps (with ITRX FINLs -trending tighter- better by 4.01 to 84.5bps) and is currently trading tight to its week's range at 0%, between 99.35 to 88.73bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0.05%, between 69.95 to 62.97bps. ExHVOL outperformed LoVOL as the differential compressed to 2.66bps from 3.05bps, but remains below the short-term average of 3.83bps. The Main exFINLS to IG ExHVOL differential compressed to 23.1bps from 23.3bps, but remains below the short-term average of 24.29bps.
Commentary compliments of www.creditresearch.com
CDR LQD 50 NAIG -0.8bps to 97.76 (14 wider - 24 tighter <> 32 steeper - 15 flatter).
CDX12 IG -3bps to 113 ($0.13 to $99.46) (FV -1.8bps to 126.13) (35 wider - 58 tighter <> 71 steeper - 50 flatter) - Trend Tighter.
CDX12 HVOL -2bps to 263 (FV -6bps to 304.14) (9 wider - 18 tighter <> 17 steeper - 13 flatter) - Trend Tighter.
CDX12 ExHVOL -3.32bps to 65.63 (FV -0.56bps to 73.67) (26 wider - 69 tighter <> 41 steeper - 54 flatter).
CDX11 XO -1bps to 315 (FV -3.48bps to 358.79) (9 wider - 20 tighter <> 21 steeper - 12 flatter) - Trend Tighter.
CDX12 HY (30% recovery) Px $+0.69 to $89.69 / -21.3bps to 787.1 (FV -11.24bps to 733.78) (17 wider - 66 tighter <> 60 steeper - 30 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.45 to $94.25 / -17.07bps to 691.94 - Trend Tighter.
MCDX12 -2bps to 123bps. - No Trend.
CDR Counterparty Risk Index fell 0.89bps (-0.76%) to 115.28bps (4 wider - 10 tighter).
CDR Government Risk Index fell 0.5bps (-1.1%) to 44.67bps..
DXY weakened 0.43% to 76.99.
Oil rose $0.66 to $71.76.
Gold fell $4.3 to $991.1.
VIX fell 1.3pts to 24.32%.
10Y US Treasury yields fell 0.9bps to 3.48%.
S&P500 Futures gained 0.72% to 1032.5.