Weekly Credit Summary: August 21

Spreads ended this tempestuous week mixed with breadth generally weak (wideners outpacing tighteners by over two-to-one) and curves flattening more than steepening in single-names. HY outperformed IG as both IG and HY managed gains on the week (Friday-to-Friday close) and even more so from Monday's gap wider openings as the intraday ranges increased as the week progressed.

IG and HY closed today within a few bps of their opening (low/tight) levels of last Thursday as HY reached back above $89 by the end of the week. Interestingly, given the headlines, we saw CMBS prices drop and ABX (RMBS) prices rise on the week as CRE losses are on the tip of everyone's tongues as is a residential housing bottom (not!).

IG and HY intrinsics both underperformed as the indices saw tecahnicals at play as well as equities weighing positively and negatively on them every day. HVOL was a smidge wider as was XO while ExHVOL tightened over 4bps (as its intrinsics widened 1bps). The compression in HY skews (and HVOL index underperformance) suggest active index arb and indeed we heard/saw a number of full and partial lists circulating. The flow from HY-IG decompression coupled with this HY compression pressure may have been a driver of some of the gap-like trading we saw this week.

In Europe, XOver was practically unch while Main was a tad tighter with senior-sub decompressing very mildly and XOver underperforming HY. Financials were the winners on the week as the high beta insurers rallied and banks/brokers followed (though not as aggressively). GS underperformed its peers quite considerably (great for our trade vs USA) but the less than bad news from credit card delinquency data helped AXP and COF outperform on the week.

All non-financial sectors were wider with TMT underperforming (as the lowest beta names gave up some considerable ground this week). AT&T Mobility shifted from 19bps to 24bps as VIA, TWX, and RRD were notably weaker. ENRG, helped or hindered by a more than $6 rise in oil prices, saw weakness as SRE and AEP underperformed as E&P names performed better, INDUs were the best of the non-financials as builders managed gains while CONSumer credits saw around half the names wider by more than 2%.

HY-IG compressed 32bps as HY clung to 800bps and LCDX fell just below 700bps by week's end. The dollar lost over 1% of its value as stocks rose around 2% with 10Y TSYs practically unch (with a slight flattening of the curve). VIX was a little higher as oil and gold both rose on the week. An odd week all-in-all.

The over/under on B.F.F. (Bank Failure Friday) is 4 - have a great weekend.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes
CDR LQD 50 NAIG -0.34bps to 98.91 (21 wider - 25 tighter <> 31 steeper - 19 flatter).
CDX12 IG -2.78bps to 114 ($0.13 to $99.42) (FV -0.53bps to 126.95) (67 wider - 50 tighter <> 72 steeper - 53 flatter) - Trend Tighter.
CDX12 HVOL +2.42bps to 270 (FV -6.37bps to 322.45) (13 wider - 15 tighter <> 19 steeper - 11 flatter) - Trend Tighter.
CDX12 ExHVOL -4.42bps to 64.74 (FV +1.18bps to 72) (54 wider - 41 tighter <> 42 steeper - 53 flatter).
CDX11 XO +21.9bps to 309.9 (FV +15.03bps to 349.74) (21 wider - 11 tighter <> 17 steeper - 16 flatter) - No Trend.
CDX12 HY (30% recovery) Px $+1 to $89.13 / -31.6bps to 806.3 (FV +20.06bps to 770.37) (75 wider - 19 tighter <> 22 steeper - 73 flatter) - Trend Tighter.
LCDX12 (65% recovery) Px $+0.81 to $94.1 / -31.38bps to 698.8 - Trend Tighter.
MCDX12 -2.67bps to 141bps. - No Trend.
CDR Counterparty Risk Index fell 0.56bps (-0.45%) to 122.54bps (8 wider - 6 tighter).
CDR Government Risk Index rose 0.05bps (0.11%) to 45.5bps..
DXY weakened 1.03% to 78.07.
Oil rose $6.48 to $73.99.
Gold rose $5.65 to $954.2.
VIX increased 0.74pts to 25.01%.
10Y US Treasury yields fell 0.4bps to 3.57%.
S&P500 Futures gained 1.93% to 1025.2.

Market Summary
Spreads were mixed in the US with IG tighter, HVOL wider, ExHVOL better, XO wider, and HY rallying. Indices generally outperformed intrinsics with skews mostly narrower as IG's skew decompressed as the index beat intrinsics, HVOL underperformed but narrowed the skew, ExHVOL outperformed pushing the skew wider, XO underperformed but compressed the skew, and HY outperformed but narrowed the skew.

Only 13.6% of names in IG moved more than their historical vol would imply as higher vol names outperformed lower vol names by -0.32% to 3.57%. IG's vol is around 9.79% per one-week period, which leaves 63 names higher vol and 62 lower vol than the index.

The names having the largest impact on IG are American International Group, Inc. (-131.32bps) pushing IG 0.79bps tighter, and RR Donnelley & Sons Company (+34.58bps) adding 0.26bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 3.47bps tighter, and RR Donnelley & Sons Company contributing 1.13bps to HVOL's change this week. The less volatile ExHVOL's move this week is driven by both Capital One Bank (-20bps) pushing the index 0.21bps tighter, and Viacom Inc. (+16.88bps) adding 0.17bps to ExHVOL.

The price of investment grade credit rose 0.13% to around 99.42% of par, while the price of high yield credits rose 1% to around 89.13% of par. ABX market prices are higher (improving) by 0.01% of par or in absolute terms, 0.23%. Broadly speaking, CMBX market prices are lower by 0.87% of par or in absolute terms, 0.31%. Volatility (VIX) is up 0.74pts to 25.01%, with 10Y TSY rallying (yield falling) 0.4bps to 3.57% and the 2s10s curve flattened by 4.5bps, as the cost of protection on US Treasuries fell 2.38bps to 24bps. 2Y swap spreads widened 3.5bps to 43.5bps, as the TED Spread tightened by 2.6bps to 0.24% and Libor-OIS improved 4.7bps to 20.1bps.

The Dollar weakened with DXY falling 1.03% to 78.069, Oil rising $6.48 to $73.99 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 8.95% today (a 8.57% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $5.65 to $954.2 as the S&P rallies (1025.2 1.93%) outperforming IG credits (114bps 0.13%) while IG, which opened tighter at 118.5bps, underperforms HY credits. IG11 and XOver11 are -8.08bps and +0.03bps respectively while ITRX11 is -2.79bps to 92bps.

The majority of credit curves steepened as the vol term structure flattened with VIX/VIXV rising implying a more bullish/less volatile short-term outlook (normally indicative of short-term spread compression expectations).

Dispersion fell -9.6bps 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.

51% of IG credits are shifting by more than 3bps and 48% of the CDX universe are also shifting significantly (less than the 5 day average of 55%). The number of names wider than the index increased by 5 to 45 as the week's range rose to 13.5bps (one-month average 11.9bps), between low bid at 113 and high offer at 126.5 and higher beta credits (1.76%) underperformed lower beta credits (1.53%).

In IG, wideners outpaced tighteners by around 2-to-1, with 67 credits notably wider. By sector, CONS saw 57% names wider, ENRGs 81% names wider, FINLs 29% names wider, INDUs 43% names wider, and TMTs 65% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG12 exFINLs) with the former trading at 92.38bps and the latter at 96.24bps.

Cross Market, we are seeing the HY-XOver spread compressing to 203.28bps from 234.88bps, and remains below the short-term average of 219.97bps, with the HY/XOver ratio falling to 1.34x, below its 5-day mean of 1.35x. The IG-Main spread decompressed to 22bps from 21.99bps, but remains above the short-term average of 21.89bps, with the IG/Main ratio rising to 1.24x, above its 5-day mean of 1.22x.

In the US, non-financials underperformed financials as IG ExFINLs are wider by 2bps to 96.2bps, with 36 of the 104 names tighter. while among US Financials, the CDR Counterparty Risk Index fell 0.56bps to 122.54bps, with Finance names (worst) tighter by 12.25bps to 908.59bps, Banks (best) tighter by 10.54bps to 154.58bps, and Brokers tighter by 7.63bps to 146.83bps. Monolines are trading tighter on average by -61.78bps (1.38%) to 3802.02bps.

In IG, FINLs outperformed non-FINLs (4.59% tighter to 2.13% wider respectively), with the former (IG FINLs) tighter by 13.9bps to 288.1bps, with 14 of the 21 names tighter. The IG CDS market (as per CDX) is 25bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (89.02bps), with the bond ETFs underperforming the IG CDS market by around 2.17bps.

In Europe, ITRX Main ex-FINLs (outperforming FINLs) rallied 3.39bps to 92.38bps (with ITRX FINLs -trending tighter- better by 0.38 to 90.5bps) and is currently trading tight to its week's range at 0%, between 102.66 to 92.38bps, and is trending tighter. Main LoVOL (trend tighter) is currently trading tight to its week's range at -0.07%, between 73 to 66.11bps. ExHVOL outperformed LoVOL as the differential compressed to -1.37bps from -0.99bps, but remains below the short-term average of -0.9bps. The Main exFINLS to IG ExHVOL differential decompressed to 27.64bps from 26.61bps, but remains below the short-term average of 28.56bps.

The Emerging Market index is 0.7% riskier (2.3bps wider) to 321.1bps. EM10 (Trend Tighter) is currently trading tight to its week's range at 12.19%, between 337.3 to 318.8bps. The HY-EM spread compressed to 485.23bps from 519.08bps, and remains below the short-term average of 514.48bps, with the HY/EM ratio falling to 2.51x, below its 5-day mean of 2.57x.

Index Internals
Within the 240 name CDX Index Universe, sentiment is significantly bearish, with 151 (65%) wideners to 73 (31%) tighteners and 105 (45%) steepeners to 128 (55%) flatteners (2.1 wideners for every tightener). Among this universe, there are 2 credits with a bullish trend, and 2 with a bearish trend (based on the previous five days trading action). The market's general sentiment is evident as we note that 9 credits are at the widest in their 5-day range currently, and 76 are at their tightest. Notably, from the 240 name index universe, there are 152 (~63%) credits that have inverted curves, with an average inversion of 26% of 5Y CDS.

Within the IG universe, dispersion overall has fallen 9.6bps to 264.2bps, as the wings of the distribution (10-90%) increased less than the centre (25-75%) of the distribution. The distribution shifted non-linearly as the 75th percentile increased the most (10bps /6.06%) to 175bps, and the 10th percentile increased the least (-0.1bps /-0.34%) to 33.9bps.

IG Sector Moves and Betas
In IG, TMT (the worst sector) under-performed IG, moving (on average) 5bps (4.74%) wider to an average of 95.5bps. ENRG (the second weakest sector) under-performed IG, moving (on average) 0.8bps (2.89%) wider to an average of 105.2bps. CONS (the median sector) under-performed IG, moving (on average) 1.8bps (2.27%) wider to an average of 90.3bps. INDU (the second best sector) under-performed IG, moving (on average) 0.6bps (0.74%) wider to an average of 106.9bps. FINL (the best sector) out-performed IG, moving (on average) 16.1bps (2.83%) tighter to an average of 360.4bps.

From the top-down, index capital structure changes were improving with credit outpacing equity. The sectors were mixed with CONS (divergent as equity beats credit), ENRG (divergent as equity beats credit), FINL (improving with credit outpacing equity), INDU (divergent as equity beats credit), and TMT (divergent as equity beats credit).

CDX-based regression betas indicate that FINL (1.98x) have the highest beta and CONS (0.72x) the lowest, with INDU (1.2x), TMT (0.86x), and ENRG (0.75x) in between. Comparing the regression betas to current level betas we see that INDU (0.39x rich) is the richest sector, while FINL (-1.37x cheap) is the cheapest, with TMT (0.29x rich), CONS (0.25x rich), and ENRG (0.13x rich) trading more in line.

Focusing on intra-sector movements within IG, we notice dispersion increasing the most in TMT which shifted 9.41% to 72.1bps, and the least in ENRG which shifted -5.89% to 71.2bps.

Index Relative-Value and Key Levels
Across index credit quality, we saw HVOL move against its trend tighter relative to IG from a ratio of 2.24x to 2.37x, and HVOL also moved closer to XO and further from IG as it trades against its trend tighter now at 79.6% of the XO-IG difference, up from 78.9%. ExHVOL12 is currently trading tight to its week's range at -0.04%, between 73.29 to 64.74bps.HY shifted wider relative to IG, against its trend tighter, now at 7.07x, up from 6.95x yesterday. The HY-LCDX spread compressed to 107.48bps from 107.67bps, but remains above the short-term average of 95.99bps, with the HY/LCDX ratio rising to 1.15x, above its 5-day mean of 1.13x. The IG-MCDX differential compressed to -27bps from -26.89bps, but remains below the short-term average of -24.23bps, with the IG/MCDX ratio falling to 0.81x, below its 5-day mean of 0.83x. The HY-IG differential compressed to 692.28bps from 721.07bps, but remains below the short-term average of 723.5bps, with the HY/IG ratio falling to 7.07x, above its 5-day mean of 7.05x.

Both IG and HY are below (tighter than) their opening levels of the week. HY12 is currently trading tight to its week's range at 12.35%, between 915.29 to 790.93bps. IG12 is currently trading tight to its week's range at 7.41%, between 126.5 to 113bps.

Our pivot point analysis suggests intraday resistance at 121.25bps in IG, and breaking support at 118.42bps or resistance at 122.42bps as significant, with the index trend bullish (based on pivot point moving average changes), shifting tighter by 0.14bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 119.63bps as a critical pivot point with 126.26bps, 133.13bps, and 140bps as important resistance levels, and 112.76bps, 106.13bps, and 99.26bps as important support levels. The short-term 'protection' relative strength indicator on IG moved slightly more oversold but remains stable at 43.7%.

Our pivot point analysis suggests intraday support at 848.44bps in HY, and breaking support at 818.55bps or resistance at 854.6bps as significant, with the index trend very bullish (based on pivot point moving average changes), shifting tighter by 5.89bps per day over the last few days. On a short-term basis (based on the last 5 days trading), we see 846.34bps as a critical pivot point for HY with 890.31bps, 959.26bps, and 1028.21bps as important resistance levels, and 777.39bps, 733.42bps, and 664.47bps as important support levels.On a short-term basis (based on the last 5 days trading), we see 846.34bps as a critical pivot point for HY with 890.31bps, 959.26bps, and 1028.21bps as important resistance levels, and 777.39bps, 733.42bps, and 664.47bps as important support levels.

Single-Name Movers
This week's biggest absolute movers in IG were RR Donnelley & Sons Company (+34.58bps), ERP Operating LP (+23.42bps), and Simon Property Group, L.P. (+21.67bps) in the wideners, and American International Group, Inc. (-131.32bps), Hartford Financial Services Group (-70bps), and Metlife, Inc. (-57.5bps) in the tighteners. The week's biggest percentage movers in IG were AT&T Mobility LLC (+25.92%), Lowe`s Companies, Inc. (+22.91%), and Viacom Inc. (+16.86%) in the wideners, and Capital One Bank (-18.18%), Hartford Financial Services Group (-15.91%), and Hewlett-Packard Company (-15.41%) in the tighteners.

In the more financial-heavy CDR NAIG LQD 50 index, sentiment is mixed with 21 wider to 25 tighter, and 31 steeper to 19 flatter as 29 of the 50 credits have inverted curves. The biggest absolute movers were Simon Property Group, L.P. (+21.67bps), Comcast Corp. (+12.58bps), and Lowe`s Companies, Inc. (+11.65bps) in the wideners, and HSBC Finance Corporation (-30bps), Wells Fargo & Company (-15bps), and Morgan Stanley (-13bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were Lowe`s Companies, Inc. (+22.91%), Autozone Inc. (+16.09%), and Time Warner Inc. (+14.62%) in the wideners, and Hewlett-Packard Company (-15.41%), Wells Fargo & Company (-14.63%), and JP Morgan Chase & Co. (-11.76%) in the tighteners.

In XO11, the week's biggest percentage movers were Centex Corp (+49.53%), Windstream Corporation (+25.06%), and Sprint Nextel Corp. (+18.75%) in the wideners, and Pulte Homes Inc (-13.88%), Expedia, Inc. (-11.29%), and KB Home (-5.77%) in the tighteners. The largest absolute movers in XO11 were Smithfield Foods Inc (+140.57bps), MGM Mirage Inc (+70.95bps), and Sprint Nextel Corp. (+59.21bps) in the wideners, and Pulte Homes Inc (-22.56bps), Expedia, Inc. (-21bps), and Host Hotels & Resorts, L.P. (-20bps) in the tighteners.

In the names of the HY index, this week's biggest percentage movers were Energy Future Holdings Corp. (+31.99%), Windstream Corporation (+25.06%), and AMR Corp (+24.5%) in the wideners, and American Axle & Manufacturing Inc (-49.9%), Lear Corp (-48.84%), and Limited Brands, Inc. (-8.64%) in the tighteners. The largest absolute movers in HY were AMR Corp (+1629.07bps), Energy Future Holdings Corp. (+383.85bps), and Freescale Semiconductor, Inc. (+213.05bps) in the wideners, American Axle & Manufacturing Inc (-1090.05bps), and Radian Group Inc (-94.22bps) in the tighteners.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -0.56bps (or -0.45%) to 122.54bps. Credit Suisse Group (10.16bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Credit Suisse Group (13.57%) is the worst (relative) performer. Merrill Lynch & Co., Inc. (-15bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and JP Morgan Chase & Co. (-11.76%) is the best (relative) performer.

The CDR Aussie Index rose 0.2bps (or 0.18%) to 112.48bps. Macquarie Bank Limited (10bps) is the worst (absolute) performerAmcor Limited (-22.82bps) is the best (absolute) performer, and Amcor Limited (-17.18%) is the best (relative) performer.

The CDR Asian Index rose 3.32bps (or 2.87%) to 119.03bps. PCCW-HKT Telephone Ltd. (27bps) is the worst (absolute) performer, whilst PCCW-HKT Telephone Ltd. (30.68%) is the worst (relative) performer. IDBI Bank Limited (-14bps) is the best (absolute) performer, and Nippon Steel Corporation (-21.95%) is the best (relative) performer.

Comments

[itsme]

On Friday, August 21, 2009, ebank, Atlanta, GA was closed by the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver.  No advance notice is given to the public when a financial institution is closed.

All deposit accounts have been transferred to Stearns Bank, N.A., St. Cloud, MN ("assuming institution") and will be available immediately.  On Monday, August 24, 2009, the former ebank location will reopen as a branch of Stearns Bank, N.A.

[Project Mayhem]

And so begins the Friday of Fail!

[Cheeky Bastard]

i bet 7 will go down today

[Project Mayhem]

One down, six to go!

[Anonymous]

Three down, four to go!

[Raymond Shaw]

In the meanwhile, Nat Gas drops another 5% today.  That potential short would be doing well today.

[Anonymous]

Three down, four to go!

[BM (not verified)]

the game is over for stupid bulls

http://stockcharts.com/h-sc/ui?s=$NASI&p=W&b=5&g=0&id=p06594924220

http://stockcharts.com/h-sc/ui?s=$BPNYA&p=W&b=3&g=0&id=p81606493159

http://stockcharts.com/h-sc/ui?s=$BPCOMPQ&p=W&b=3&g=0&id=p81606493159

http://stockcharts.com/h-sc/ui?s=$BPSPX&p=W&b=3&g=0&id=p81606493159

short the stock market

[dnarby]

Pretty sure you said that a few days ago... : |