Weekly Credit Summary: April 30

Courtesy of www.creditresearch.com

Spreads were decidedly wider this week with HY notably underperforming IG but equity underperforming credit in general. US HY underperformance was the standout in credit markets with Europe ending very marginally wider in corporates as we suspect some of the technicals impacting index compression in the US started to unwind as risk appetites shrank.

Sovereign anxiety was undoubtedly the driver of much of this week's swings but we note that close to close, SovX managed a modest 1.5bps widening while its underlyings moved around 6bps (hovering above 120bps). We suspect some profit-taking in index positions amid the violent swings in Greece's curve (which is a massive overweight in the index). Greece ended the week 100bps wider, followed by Portugal 10bps wider in 5Y CDS which compares with a 128bps widening and 60bps widening in the 5Y bonds respectively - a considerable difference.

Intra-week, we saw IG trade inside of Main but by the close we were back to 'normal' with a 5bps differential re-emerging thanks to late weakness in the US. FINLs were notable underperformers on the week though as ITRX FINLs widened 5-6bps (still rich to intrinsics suggesting some single-name protection vs sovereign trades at play) and interestingly Subs outperformed Seniors as they widened (as we suggested last week to fade the Senior-Sub gap around 70bps).

HY's underperformance, which was still shy of equity's sell-off this week in terms of empirical beta, only caused a modest decompression from LCDX and the move in HY index was considerably greater than in the intrinsics suggesting faster money needing a systemic hedge as opposed to thoughtful idiosyncratic bets.

Breadth was negative with wideners outpacing tighteners by over 5-to-1 as high beta underperformed low beta, CONSumer credits outperformed, ENRG underperformed, and FINLs underperformed non-FINLs. The 12bps range in IG was larger than recent averages but was notably violent in its whip-saw frequency. HY saw a 48bps wide to tight range this week and closed 30bps wider than it opened on Monday (IG was 4bps wider than its open).

US ExFINLs in IG widened 3bps to 86.75bps while in Europe we note that IG ExFINLs rallied 1bps to 79.25bps. This seems as much driven by the yieldier Greek, Portuguese, and Spanish utilities improving towards the end of the week on bailout hopes as weakness in energy names hurt the US. Much more an idiosyncratic issue in our views than any renewed systemic risk appetite for European corporates.

While FINLs (contagion in Europe and FINREG/probes in US) were the headline makers, close-to-close they really only moved 5bps or so based on our Counterparty Risk Index. This is misleading though as there was notable moves in the short-end of the curve and some large idiosyncratic standouts such as GS, DB, and BNP. Aussie and Asia saw considerable derisking this week as financials underperformed there also.

Considerable strength in the US TSY complex and a significant flattening in 2s10s (to its flattest since DEC09) sits with a nice bid for Gold in the face of a decent dollar rally. Oil rose over $1 on the week but EM sovereigns lost over 11bps but our EM-SovX trades (happily closed now) remain a much more systemic cycle play than short-term trade given SovX's vol. Notable deterioration in some of the short-term lending markets (OIS, Libor, etc.) is also worth paying attention to, and we we discussed in the daily commentary, there are a few stirrings of one-sided liquidity, 'gappiness', and volatility that along with HY and FINL underperformance (and curve moves) is ringing some 'Lehman' alarm bells.

Have a Great Weekend (as we expect to be glued to the terminal watching Europe).

Index/Intrinsics Changes (Friday-to-Friday)
CDR LQD 50 NAIG +2.95bps to 84.31 (42 wider - 4 tighter <> 27 steeper - 22 flatter).
CDX14 IG +3.25bps to 92.25 ($-0.13 to $100.34) (FV +3.69bps to 93.02) (109 wider - 10 tighter <> 46 steeper - 79 flatter) - No Trend.
CDX14 HVOL +5.55bps to 145.55 (FV +5.04bps to 0) (27 wider - 2 tighter <> 10 steeper - 20 flatter) - Trend Wider.
CDX14 ExHVOL +2.52bps to 75.42 (FV +3.28bps to 79.43) (82 wider - 13 tighter <> 59 steeper - 36 flatter).
CDX14 HY (30% recovery) Px $-1.03 to $99.97 / +25.8bps to 500.7 (FV +8.32bps to 453.47) (71 wider - 25 tighter <> 35 steeper - 65 flatter) - Trend Wider.
LCDX14 (70% recovery) Px $-0.75 to $99.25 / +19.75bps to 269.75 - Trend Wider.
MCDX14 +2.75bps to 125bps. - No Trend.
ITRX13 Main +0.37bps to 87bps (FV+2.88bps to 88.91bps).
ITRX13 XOver +3.5bps to 425.5bps (FV--2.31bps to 409.98bps).
ITRX13 FINLs +5.25bps to 116.75bps (FV+6.24bps to 120.96bps).
CDR Counterparty Risk Index rose 4.01bps (3.33%) to 124.61bps (11 wider - 3 tighter).
CDR Government Risk Index fell 0.12bps (-0.13%) to 85.63bps..
DXY strengthened 0.67% to 81.9.
Oil rose $1.03 to $86.15.
Gold rose $21.6 to $1179.2.
VIX increased 5.43pts to 22.05%.
10Y US Treasury yields fell 15.6bps to 3.66%.
S&P500 Futures lost 2.38% to 1183.4.

Movers in Detail (Friday to Friday)
The price of investment grade credit fell 0.13% to around 100.34% of par, while the price of high yield credits fell 1.03% to around 99.97% of par. ABX market prices are higher (improving) by 0.45% of par or in absolute terms, 1.12%. Volatility (VIX) is up 5.43pts to 22.05%, with 10Y TSY rallying (yield falling) 15.6bps to 3.66% and the 2s10s curve flattened by 5bps, as the cost of protection on US Treasuries fell 2.5bps to 37bps. 2Y swap spreads widened 5bps to 23.52bps, as the TED Spread widened by 2.2bps to 0.19% and Libor-OIS deteriorated 2.5bps to 11.4bps.

The Dollar strengthened with DXY rising 0.67% to 81.895, Oil rising $1.03 to $86.15 (outperforming the dollar as the value of Oil (rebased to the value of gold) fell by 0.64% this week (a 1.88% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $21.6 to $1179.2 as the S&P is down (1183.4 -2.38%) underperforming IG credits (92.25bps -0.13%) while IG, which opened the week tighter at 88.75bps, outperforms HY credits. IG13 and XOver13 are +3.63bps and +3.5bps respectively while ITRX13 is +0.37bps to 87bps.

Dispersion rose +2.1bps in IG. Broad market dispersion is less than historically expected given current spread levels, pointing to a more sanguine view of credits as investors discriminate less between names, with dispersion decreasing more than expected today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.

51% of IG credits are shifting by more than 3bps and 31% of the CDX universe are also shifting significantly (less than the 5 day average of 46%). The number of names wider than the index stayed at 49 as the week's range rose to 12bps (one-week average 7.45bps), between low bid at 87.25 and high offer at 99 and higher beta credits (4.74%) underperformed lower beta credits (4.15%).

In IG, wideners outpaced tighteners by around 10-to-1, with 107 credits wider. By sector, CONS saw 79% names wider, ENRGs 82% names wider, FINLs 95% names wider, INDUs 93% names wider, and TMTs 83% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG exFINLs) with the former trading at 79.41bps and the latter at 86.84bps.

Cross Market, we are seeing the HY-XOver spread decompressing to 75.54bps from 52.88bps, and remains above the short-term average of 57.23bps, with the HY/XOver ratio rising to 1.18x, above its 5-day mean of 1.13x. The IG-Main spread decompressed to 5.25bps from 2.37bps, but remains above the short-term average of 1.52bps, with the IG/Main ratio rising to 1.06x, above its 5-day mean of 1.02x. Among the HY names, we see higher risk names (>500bps) underperforming lower risk (<500bps) names. In the IG names, we see higher beta names outperforming lower beta names.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 3.2bps to 86.8bps, with 10 of the 106 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 3.84bps to 124.44bps, with Brokers (worst) wider by 9.5bps to 171bps, Banks (best) tighter by 0.13bps to 111.04bps, and Finance names wider by 1.45bps to 280.27bps. Monolines are trading tighter on average by -107.57bps (5.71%) to 2089.12bps.

In IG, FINLs underperformed non-FINLs (5.47% wider to 3.82% wider respectively), with the former (IG FINLs) wider by 6.7bps to 128.2bps, with 1 of the 19 names tighter. The IG CDS market (as per CDX) is 23.3bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (68.79bps), with the bond ETFs underperforming the IG CDS market by around 1.93bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 1bps to 79.41bps (with ITRX FINLs -trending tighter- weaker by 5.25 to 116.75bps) and is currently trading tight to its week's range at 0%, between 88.88 to 79.41bps, and is trading sideways. Main LoVOL (trend tighter) is currently trading tight to its week's range at 0.02%, between 85.68 to 74.84bps. ExHVOL underperformed LoVOL as the differential decompressed to 0.42bps from -2.25bps, but remains above the short-term average of -3.16bps. The Main exFINLS to IG ExHVOL differential compressed to 4.15bps from 7.52bps, and remains below the short-term average of 7.29bps.

The Emerging Market index is 5.7% riskier (11.9bps wider) to 222.1bps. EM (Trend Wider) is currently trading in the middle of the week's range at 72.95%, between 226.5 to 210.1bps. The HY-EM spread decompressed to 278.47bps from 264.74bps, and remains above the short-term average of 271.81bps, with the HY/EM ratio falling to 2.25x, above its 5-day mean of 2.24x.

Capital Structure Changes (Friday-to-Friday)
Most names this week saw agreement on deterioration within both credit and equity. Some of the more notable moves include RIG 5Y +43bps (+3.42SDs) and Stock -3.39SDs (-21.75%), HAL 5Y +18bps (+2.13SDs) and Stock -2.2SDs (-13.16%), CAM 5Y +37bps (+2.11SDs) and Stock -2.56SDs (-18.14%), APC 5Y +14bps (+1.35SDs) and Stock -3.14SDs (-17.58%), UIS 5Y +76bps (+1.23SDs) and Stock -5.13SDs (-32.21%), CSC 5Y +25bps (+1.13SDs) and Stock -1.75SDs (-5.96%), MEE 5Y +74bps (+0.92SDs) and Stock -2.22SDs (-19.35%), GS 5Y +23bps (+0.86SDs) and Stock -1.24SDs (-8.07%), and EK 5Y +55bps (+0.52SDs) and Stock -2.76SDs (-26.62%).

Based on our spread vol measures, the following names widened the most this week RIG, CAM, HAL, APC, UIS, WU, EXC, CSC, CA, DO, NE, MEE, APA, ENB CN, CTL, GS, COP, BSX, ARW, and YRCW. Best performers (in terms of number of standard deviations tighter) were RKT, NKE US, UAUA, AKS, VLO, WHR, Q, RCL, BC, and SUN.

Only five names passed our filters and were in agreement on improvement in equity and credit and they were WHR 5Y -12bps (-0.83SDs) and Stock +1.21SDs (6.3%), BC 5Y -108bps (-1.02SDs) and Stock +1.24SDs (10.32%), SUN 5Y -32bps (-1.18SDs) and Stock +0.9SDs (4.84%), VLO 5Y -17bps (-0.69SDs) and Stock +0.8SDs (4.48%), and DUK 5Y -3bps (-0.29SDs) and Stock +1.43SDs (3.21%).

The divergences this week were dominated by credit underperformers with the following names standing out: WU 5Y +22bps (+1.21SDs) and Stock +0.63SDs (2.61%), COP 5Y +6bps (+0.8SDs) and Stock +0.52SDs (1.88%), UHS 5Y +20bps (+0.64SDs) and Stock +0.35SDs (1.66%), DYN 5Y +66bps (+0.63SDs) and Stock +0.43SDs (5.41%), ECA CN 5Y +4bps (+0.55SDs) and Stock +0.79SDs (2.81%), CMCSA US 5Y +8bps (+0.51SDs) and Stock +1.07SDs (4.18%), NRG 5Y +20bps (+0.48SDs) and Stock +1.31SDs (5.97%), NEM 5Y +4bps (+0.35SDs) and Stock +1.16SDs (5.46%), and ABX CN 5Y +1bps (+0.11SDs) and Stock +2.42SDs (9.19%).

Credit outperforming divergences include BLC 5Y -17bps (-0.46SDs) and Stock -0.55SDs (-4.51%), JNY 5Y -9bps (-0.5SDs) and Stock -0.68SDs (-4.14%), NKE US 5Y -4bps (-0.61SDs) and Stock -0.76SDs (-2.59%), UAUA 5Y -129bps (-0.62SDs) and Stock -0.74SDs (-6.25%), AKS 5Y -35bps (-0.64SDs) and Stock -1.67SDs (-13.13%), Q 5Y -96bps (-0.86SDs) and Stock -0.27SDs (-0.95%), RCL 5Y -28bps (-0.88SDs) and Stock -0.17SDs (-1.08%), JCP 5Y -7bps (-0.42SDs) and Stock -1.67SDs (-9.26%), AMKR 5Y -30bps (-0.4SDs) and Stock -1.62SDs (-12.1%), LTD 5Y -7bps (-0.39SDs) and Stock -1.22SDs (-6.08%), WY 5Y -5bps (-0.23SDs) and Stock -1.63SDs (-7.36%), JBLU US 5Y -18bps (-0.12SDs) and Stock -2.28SDs (-15.39%), and JWN 5Y -1bps (-0.08SDs) and Stock -2.01SDs (-10.49%).

Single-Name Movers (Friday to Friday)
This week's biggest absolute movers in IG were Transocean Ltd. (+42.5bps), Computer Sciences Corp. (+25bps), and SLM Corp (+22.5bps) in the wideners, and Valero Energy Corp. (-17.25bps), Whirlpool Corp. (-11bps), and Newell Rubbermaid Inc. (-5.75bps) in the tighteners. This week's biggest percentage movers in IG were Transocean Ltd. (+62.96%), Halliburton Company (+30.73%), and Computer Sciences Corp. (+29.24%) in the wideners, and Valero Energy Corp. (-9.47%), Whirlpool Corp. (-9.21%), and Duke Energy Carolinas, LLC (-4.94%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is very bearish with 42 wider to 4 tighter, and 27 steeper to 21 flatter as 2 of the 50 credits have inverted curves. The biggest absolute movers were Computer Sciences Corp. (+25bps), Goldman Sachs Group Inc (+23bps), and Berkshire Hathaway Inc (+11.5bps) in the wideners, and Bank of America Corp. (-8.5bps), Wells Fargo & Company (-5bps), and HSBC Finance Corporation (-3bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were Computer Sciences Corp. (+29.24%), Goldman Sachs Group Inc (+15.92%), and Berkshire Hathaway Inc (+11.44%) in the wideners, and Bank of America Corp. (-5.72%), Wells Fargo & Company (-5.71%), and HSBC Finance Corporation (-3.51%) in the tighteners.

In Main, the biggest percentage movers were BP PLC (+27.52%), Iberdrola SA (+22.9%), and Telefonica SA (+18.88%) in the wideners, and Banco Bilbao Vizcaya Argentaria SA (-9.09%), BASF SE (-8.29%), and Banco Santander, S.A. (-7.75%) in the tighteners.The largest absolute movers in Main were Banco Espirito Santo SA (+62.54bps), EDP-Energias de Portugal, S.A. (+29.07bps), and Iberdrola SA (+21.99bps) in the wideners, and Banco Bilbao Vizcaya Argentaria SA (-16bps), Banco Santander, S.A. (-12.21bps), and WPP 2005 Limited (-4.97bps) in the tighteners.

The biggest percentage movers in XOver were Gecina SA (+14.43%), Nordic Telephone Company Holding ApS (+13.42%), and International Power Plc (+9.02%) in the wideners, and Nielsen Company/The (-23.04%), Grohe Holding GmbH (-20.86%), and Cognis GmbH (-11.55%) in the tighteners.The largest absolute movers in XOver were BCM Ireland Finance Ltd (+62.37bps), Sol Melia SA (+47.39bps), and ONO Finance, PLC (+28.8bps) in the wideners, and Grohe Holding GmbH (-189.49bps), Nielsen Company/The (-104.84bps), and Ineos Group Holdings plc (-61.42bps) in the tighteners.

In the names of the HY index, this week's biggest percentage movers were Massey Energy Company (+17%), Unisys Corporation (+16.21%), and K Hovnanian Enterprises, Inc. (+13.24%) in the wideners, and Brunswick Corp. (-25.71%), AK Steel Corporation (-8.24%), and Royal Caribbean Cruises Ltd (-8.07%) in the tighteners. The largest absolute movers in HY were K Hovnanian Enterprises, Inc. (+87.04bps), McClatchy Co./The (+84.78bps), and Unisys Corporation (+75.76bps) in the wideners, and Brunswick Corp. (-108bps), iStar Financial Inc. (-63.13bps), and Harrah's Operating Co Inc (-37.86bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) rose 4.24bps (or 3.52%) to 124.84bps. Goldman Sachs Group Inc (23bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Goldman Sachs Group Inc (15.92%) is the worst (relative) performer. Dresdner Bank AG (-9.54bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Dresdner Bank AG (-11.03%) is the best (relative) performer.

The CDR Aussie Index rose 2.55bps (or 3.59%) to 73.66bps. QBE Insurance Group Limited (13.91bps) is the worst (absolute) performer, whilst QBE Insurance Group Limited (18.8%) is the worst (relative) performer. Crown Limited (-1.47bps) is the best (absolute) performer, and Crown Limited (-2.12%) is the best (relative) performer.

The CDR Asian Index rose 4.32bps (or 4.99%) to 90.84bps. Acom Co Ltd (21.12bps) is the worst (absolute) performer, whilst SK Telecom Co Ltd (13.72%) is the worst (relative) performer. Promise Co Ltd (-3.76bps) is the best (absolute) performer, and Nippon Steel Corporation (-4.44%) is the best (relative) performer.

Comments

[mrdenis]

I don't want to sell anything, buy anything, or process anything as a career. I don't want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed. You know, as a career, I don't want to do that.

[jkruffin]

News already out early this morning of Greek citizens in the streets protesting austerity measures.  This is going to get ugly,  then uglier.  Then when other countries start falling Silver and Gold are going to rocket higher.

[LeBalance]

Just FYI: May 1 is a high holy day for the Power Elite.

[buzzsaw99]

the banks that own greek debt have zero risk. all big bank counterparties are taxpayer insured 100%.

[LarryKudlow]

This is Larry Kudlow aboard the deck of the aircraft carrier USS Bernanke in the Mediterranean.

As you can see helicopters are constantly landing and taking off. Below the deck are special pieces of equipment from the Federal Building in San Francisco. The crew has been told to conserve  of cellulose based products - including toilet paper.

[Mitchman]

+1000!!  LMAO!