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Weekly Credit Summary: January 22
Today - Spreads moved dramatically wider again today for the eighth day-in-a-row today with both HY and IG now making the longest and most consistent run of wider wides, tights, and closes since FEB08. Furthermore, both IG and HY broke back above their 50-day moving averages with the last two days showing one of the largest decompressions in recent history (on a relative basis).
This last week:
Whether this week was THE turning point or A turning point we will not know for a while (though we have our suspicions) but it was the largest week-over-week widening since JUN09 in absolute and relative terms for IG credit. IG has not closed a week above 95bps since 12/4 and HY still has some room to go to revert empirically back to same date levels of risk.
IG has now moved over 21bps from intraday tight to wide in the last nine days, beating the nine-day sell-off in mid-NOV09, the 13-day move in OCT09, and only taking second place for the year tpo the post-roll shenanigans in SEP09. IG13 is now 4.5bps wider than at its SEP09 inception (though shorts are still suffering from the 7bps equivalent cost of carry), while ExHVOL is well in the money since inception thanks to this week's decompression.
IG underperformed intrinsics on the week in 5Y but not in the other maturities which all kept in sync, suggesting a focus of selling pressure in the 5Y index. HY index and intrinsics stayed around the same level, decompressing around 50bps, but behaving a little less frantically than IG for once. High beta significantly underperformed low beta names as breadth this week was dire at around 30-to-1 wideners to tighteners (and flattening curves outpaced steepeners by 2-to-1).
Given the quite significant sell-off in corporate spreads, sovereigns were actually fairly well-behaved on the week with SovX intrinsics about 3bps wider (but Index 7bps wider compressing the skew) as we saw the PIIGS actually outperform the major s in EUR (sounds like the compression trade we mentioned). China was one of the weakest sovereigns this week as inflation fears stoke de-pegging fears.
The most notable RV this week include: MER-BAC +30bps, ITRX Sen-Sub +5bps, HY-LCDX +15bps, HY-IG +35bps (as HY/IG trades back to exactly 6x), HY-EM +28bps, HY-XOver +15bps, and XOver-Main +28bps. In the US, rolls tended to stay relatively in sync for the week but in EUR, Main saw off-the-runs underperforming Main8 most notably).
On the week, thanks we suppose to talk of a mining tax and FINL weakness, Australia is underperforming both Europe and Asia with the latter underperforming the former. iTraxx Asia ex-Japan spreads deteriorated 15bps (Recent Trend Wider) is currently trading at the wides of the week's range at 107bps, between 107 to 92bps. iTraxx Australia spreads deteriorated 13.04bps (Recent Trend Wider) is currently trading at the wides of the week's range at 92bps, between 92 to 78.96bps. Among the European credits, financials are underperforming non-financials with ITRX FINLs +12.91% to 85.25bps and Main ex-FINLs +8.53% to 80.25bps.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes
CDR LQD 50 NAIG +10.26bps to 86.69 (49 wider - 0 tighter <> 20 steeper - 30 flatter).
CDX13 IG +12.63bps to 96.125 ($-0.53 to $100.17) (FV +9.34bps to 93.81) (118 wider - 5 tighter <> 55 steeper - 68 flatter) - Trend Wider.
CDX13 HVOL +30.67bps to 165.67 (FV +17.44bps to 166.01) (28 wider - 1 tighter <> 13 steeper - 16 flatter) - Trend Wider.
CDX13 ExHVOL +6.93bps to 74.16 (FV +6.84bps to 71.58) (90 wider - 5 tighter <> 53 steeper - 42 flatter).
ITRX12 Main +6.75bps to 81 (FV +9.84bps to 84.66) (124 wider - 1 tighter <> 102 steeper - 23 flatter) - Trend Wider
ITRX12 HiVol +12bps to 117 (FV +13.99bps to 119.19) (30 wider - 0 tighter <> 25 steeper - 5 flatter) - Trend Wider
ITRX12 LoVol +5.09bps to 69.63 (FV +8.54bps to 73.91) (94 wider - 1 tighter <> 18 steeper - 77 flatter) - Trend Wider
ITRX12 XOver +34.5bps to 448.5 (FV +37.92bps to 471.38) (41 wider - 3 tighter <> 29 steeper - 16 flatter) - Trend Wider
CDX13 HY (30% recovery) Px $-1.88 to $97 / +49.3bps to 578 (FV +51.84bps to 534.88) (97 wider - 2 tighter <> 24 steeper - 75 flatter) - Trend Wider.
LCDX12 (65% recovery) Px $-1.5 to $104.47 / +39.77bps to 428.92 - Trend Wider.
MCDX12 +14bps to 167bps. - Trend Wider.
CDR Counterparty Risk Index rose 14.84bps (15.89%) to 108.19bps (14 wider - 0 tighter).
CDR Government Risk Index rose 5.62bps (7.84%) to 77.36bps.
DXY strengthened 1.23% to 78.27.
Oil fell $3.93 to $74.07.
Gold fell $37.8 to $1093.13.
VIX increased 9.4pts to 27.31%.
10Y US Treasury yields fell 6.7bps to 3.61%.
S&P500 Futures lost 3.65% to 1091.
Movers in Detail
The price of investment grade credit fell 0.53% to around 100.16% of par, while the price of high yield credits fell 1.88% to around 97% of par. ABX market prices are lower by 0.47% of par or in absolute terms, 0.89%. Volatility (VIX) is up an enormous 9.4pts to 27.31%, with 10Y TSY rallying (yield falling) 6.7bps to 3.61% and the 2s10s curve steepened by 0.7bps (but there was some duration extension week-over-week though the 5-to-10 year segment seemed pretty flat, 30Y weak and 2-5 bid), as the cost of protection on US Treasuries rose 6.77bps to 44bps. 2Y swap spreads widened 5.4bps to 32.25bps, as the TED Spread widened by 0.8bps to 0.21% and Libor-OIS improved 0.9bps to 10.4bps.
The Dollar strengthened with DXY rising 1.23% to 78.274, Oil falling $3.93 to $74.07 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 1.75% this week (a 3.81% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $37.8 to $1093.13 as the S&P is down (1091 -3.65%) underperforming IG credits (96.25bps -0.53%) while IG, which opened this shortened week tighter at 86bps, underperformed HY credits. IG12 and XOver12 are +12.5bps and +34.5bps respectively while ITRX12 is +6.75bps to 81bps.
Dispersion rose +6.3bps 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 this week indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.
90% of IG credits are shifting by more than 3bps and 72% of the CDX universe are also shifting significantly (more than the 5 day average of 49%). The number of names wider than the index decreased by 1 to 45 as the week's range rose to 17.5bps (one-week average 9.02bps), between low bid at 79.375 and high offer at 96.875 and higher beta credits (13.25%) underperformed lower beta credits (9.72%).
In IG, wideners outpaced tighteners by around 23-to-1, with 117 credits wider. By sector, CONS saw 95% names wider, ENRGs 100% names wider, FINLs 75% names wider, INDUs 100% names wider, and TMTs 96% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) outperformed US (IG13 exFINLs) with the former trading at 79.83bps and the latter at 80.64bps.
Cross Market, we are seeing the HY-XOver spread decompressing to 129.47bps from 114.67bps, but remains above the short-term average of 106.33bps, with the HY/XOver ratio rising to 1.29x, above its 5-day mean of 1.25x. The IG-Main spread decompressed to 15.25bps from 9.25bps, and remains above the short-term average of 10.04bps, with the IG/Main ratio rising to 1.19x, above its 5-day mean of 1.13x.
In the US, non-financials outperformed financials (which includes the major banks excluded from IG) as IG ExFINLs are wider by 8.5bps to 80.6bps, with 2 of the 105 names tighter. while among US Financials, the CDR Counterparty Risk Index rose 14.93bps to 108.28bps, with Brokers (worst) wider by 30.17bps to 145.5bps, Banks (best) wider by 14.42bps to 117.5bps, and Finance names wider by 48.14bps to 460.88bps. Monolines are trading wider on average by 467bps (12.86%) to 3245.34bps.
In IG, FINLs (somewhat surprisingly) outperformed non-FINLs (8.23% wider to 11.85% wider respectively), with the former (IG FINLs) wider by 12.4bps to 162.7bps, with 3 of the 20 names tighter. The IG CDS market (as per CDX) is 16.9bps cheap (we'd expect LQD to underperform TLH) to the LQD-TLH-implied valuation of investment grade credit (79.31bps), with the bond ETFs outperforming the IG CDS market by around 5.49bps.
In Europe, ITRX Main ex-FINLs (outperforming FINLs) widened 5.89bps to 79.83bps (with ITRX FINLs -trending wider- weaker by 10.19 to 85.69bps) and is currently trading at the wides of the week's range at 100%, between 79.83 to 70.59bps, and is trending wider. Main LoVOL (trend wider) is currently trading at the wides of the week's range at 100.02%, between 69.63 to 61.74bps. ExHVOL underperformed LoVOL as the differential decompressed to 4.7bps from 2.7bps, but remains above the short-term average of 1.85bps. The Main exFINLS to IG ExHVOL differential compressed to 5.5bps from 6.7bps, but remains below the short-term average of 7.51bps.
The Emerging Market index is 8.9% riskier (21.1bps wider) to 259.1bps. EM12 (Trend Wider) is currently trading at the wides of the week's range at 99.87%, between 259.1 to 232.3bps. The HY-EM spread decompressed to 318.91bps from 290.68bps, but remains above the short-term average of 289.15bps, with the HY/EM ratio rising to 2.23x, above its 5-day mean of 2.2x.
Index Internals
Within the 240 name CDX Index Universe, sentiment is significantly bearish, with 228 (96%) wideners to 7 (3%) tighteners and 82 (35%) steepeners to 153 (65%) flatteners (32.6 wideners for every tightener). Among this universe, there are no credits with a bullish trend, and 109 with a bearish trend (based on the previous five days trading action).
The market's general sentiment is evident as we note that 212 credits are at the widest in their 5-day range currently, and 3 are at their tightest. Notably, from the 240 name index universe, there are 33 (~14%) credits that have inverted curves, with an average inversion of 36% of 5Y CDS.
Within the IG universe, dispersion overall has risen 6.4bps to 92.1bps, 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 (13bps /13%) to 113bps, and the 10th percentile increased the least (3.8bps /9.51%) to 43.7bps.
IG Sector Moves and Betas
In IG, INDU (the worst sector) under-performed IG, moving (on average) 12.1bps (16.96%) wider to an average of 79.6bps. CONS (the second weakest sector) out-performed IG, moving (on average) 7.3bps (11.43%) wider to an average of 78.2bps. TMT (the median sector) out-performed IG, moving (on average) 8.9bps (11.17%) wider to an average of 90.5bps. FINL (the second best sector) out-performed IG, moving (on average) 13.4bps (8.4%) wider to an average of 171.9bps. ENRG (the best sector) out-performed IG, moving (on average) 6.4bps (8.31%) wider to an average of 77.2bps.
From the top-down, index capital structure changes shifted both weaker with credit outperforming equity. The sectors were mixed with CONS (both weaker with credit outperforming equity), ENRG (both weaker with credit outperforming equity), FINL (both weaker with credit outperforming equity), INDU (both weaker with credit outperforming equity), and TMT (both weaker with credit outperforming equity).
CDX-based regression betas indicate that INDU (1.2x) have the highest beta and ENRG (0.73x) the lowest, with TMT (1.1x), FINL (0.95x), and CONS (0.94x) in between. Comparing the regression betas to current level betas we see that INDU (0.24x rich) is the richest sector, while FINL (-0.81x cheap) is the cheapest, with CONS (0.16x rich), ENRG (0.1x rich), and TMT (0.09x rich) trading more in line.
Focusing on intra-sector movements within IG, we notice dispersion increasing the most in INDU which shifted 23.98% to 43.7bps, and the least in CONS which shifted 4.03% to 31.8bps.
Single-Name Movers (week-over-week)
This week's biggest absolute movers in IG were International Lease Finance Corp. (+70.67bps), Alcoa Inc. (+43bps), and GATX Corporation (+39bps) in the wideners, and UnitedHealth Group Inc (-13.75bps), Cigna Corp (-8.5bps), and Johnson Controls Inc (-7bps) in the tighteners. This week's biggest percentage movers in IG were GATX Corporation (+33.05%), AT&T Mobility LLC (+31.17%), and Carnival Corp. (+29.82%) in the wideners, and UnitedHealth Group Inc (-11.58%), Cigna Corp (-8.85%), and Aetna Inc (-6.67%) in the tighteners.
This week's biggest absolute movers in Main were ArcelorMittal (+32.53bps), Enel SpA (+31.75bps), and EDP-Energias de Portugal, S.A. (+28bps) in the wideners, and Cadbury Holdings Limited (-21.75bps), Telekom Austria AG (+0.25bps), and Koninklijke DSM N.V. (+0.52bps) in the tighteners. This week's biggest percentage movers in Main were Enel SpA (+44.25%), EDP-Energias de Portugal, S.A. (+39.16%), and Iberdrola SA (+38.21%) in the wideners, and Cadbury Holdings Limited (-30.42%), Telekom Austria AG (+0.25%), and Alstom (+1.2%) in the tighteners.
In the names of the XOver index, this week's biggest percentage movers were Porsche Automobil Holding SE (+29.19%), Ladbrokes plc (+21.55%), and Seat Pagine Gialle SpA (+19.51%) in the wideners, and Kabel Deutschland GmbH (-17.4%), Nordic Telephone Company Holding ApS (-13.95%), and International Power Plc (-0.54%) in the tighteners. The largest absolute movers in XOver were Seat Pagine Gialle SpA (+242.23bps), Ineos Group Holdings plc (+211.24bps), and Norske Skogindustrier ASA (+134.56bps) in the wideners, and Kabel Deutschland GmbH (-70.57bps), Nordic Telephone Company Holding ApS (-30bps), and International Power Plc (-1.34bps) in the tighteners.
In the names of the HY index, this week's biggest percentage movers were Cooper Tire & Rubber Company (+29.57%), Realogy Corporation (+26.78%), and Fairfax Financial Holdings Limited (+25.55%) in the wideners, and Sabre Holdings Corp (-4.76%), EL Paso Corp (-4.23%), and AMR Corp (+0.81%) in the tighteners. The largest absolute movers in HY were Radian Group Inc (+334.26bps), Realogy Corporation (+290.11bps), and Clear Channel Communications Inc (+268.27bps) in the wideners, and Sabre Holdings Corp (-25bps), EL Paso Corp (-15bps), and Chesapeake Energy Corp. (+5bps) in the tighteners.
The CDR Counterparty Risk Index Series 2 (of brokers and banks) rose 14.84bps (or 15.89%) to 108.19bps. Merrill Lynch & Co., Inc. (42.75bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst JP Morgan Chase & Co. (41.43%) is the worst (relative) performer. BNP Paribas (5.5bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Citigroup Inc (7.84%) is the best (relative) performer.
The CDR Aussie Index rose 8.98bps (or 13.11%) to 77.46bps. RIO Tinto Ltd (16.12bps) is the worst (absolute) performer, whilst Commonwealth Bank of Australia (24.45%) is the worst (relative) performer. Amcor Limited (2.78bps) is the best (absolute) performer, and Qantas Airways Ltd (4.06%) is the best (relative) performer.
The CDR Asian Index rose 14.92bps (or 16.58%) to 104.89bps. Promise Co Ltd (84.09bps) is the worst (absolute) performer, whilst Hong Kong Land Company Ltd (32.62%) is the worst (relative) performer. Panasonic Corporation (2bps) is the best (absolute) performer, and Panasonic Corporation (4.84%) is the best (relative) performer.
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What is IG?
What is IG?
the fact that HY performed better than IG tells you all you need to know about how much excess liquidity is still sloshing around in the markets.
You've lost me. Connect the dots for me on your
thinking perhaps I'm missing something.
Could someone recomend a dicionary for a mortal soul such as myself?
as income disappears, you'll see IG:HY go parabolic.
cash goes poof. nothing to stop it but through counterfeiting money.
and that's not going to happen because the us dollar is not suicidal.
at leas i think its not (or about 65% not)
Thanks again for the summary. Really wraps things up into a neat little package . If you're asking what the IG indices are you shouldn't be reading this and instead studying the CDS industry. If you don't understand IG I'm sure the rest makes no sense.
IG/HY is more to do with bonds than cds, you dirty daytrader.
All the indexes mentioned in this summary are of CDS...or is that what you meant?
K.I.S.S. - Just a look at the graphs on the site Tyler quoted compliments of Creditreasearch.com is enough for a Tyro like myself . Up moves on the graphs are BAD (spreads) . It looked much worse a year ago . Technically the "down" trend may be breaking ( bad) . Other than that most of what i read is gobbledegook to this simple mind . Thank you Tyler