Weekly Credit Summary: January 8
Commentary from www.creditresearch.com
Spreads are undoubtedly tighter since the New Year as HY has dramatically outperformed IG this week with tighteners in single-names magestically outpacing wideners by 9-to-1. Curves were more mixed with an almost perfect balance between steepeners and flatteners even as index curves steepened significantly (as did the TSY curve). This was the first year since 2003 that the on-the-run IG index rallied in the first week of the year.
Low beta actually outperformed high beta in single-names but HY intrinsics far exceeded HY index performance this week as we heard arb unwinds early in the week. IG skews remained fairly flat while XOver compressed after an early week blast by the index. rolls appeared quite flat week-on-week with HVOL9 seeing the most compression thanks to some of the tail risk names just crushing tighter (which smells like correlation or index arb desks at play).
HY-IG over XOver-Main decompressed 5bps on weeks and LCDX-HY decompressed 5bps while IG-MCDX decompressed 5bps and ITRX FINLs Sen-Sub compressed a dramatic 13bps.
FINLs outperformed non-financials with ENRG names outperforming the other IG sectors. The FINLs werre helped by dramatic compression in monolines (we can only guess due to FGIC';s somewhat positive auction) but the major banks were actually a disappointment this week as GS, BofA, and WFC were net wider from New Year's Eve.
Among Sovereigns, the majority were tighter on the week with Portugal and Japan the standouts as wideners on the week in majors and Argentina the only EM name to move notably wider. ABX and CMBX prices were higher this week (with CMBX outperforming) as the lower-rate tranches outperformed the higher-rated.
Across our broad CDS universe, there was risk appetite as HY names saw more DV01-adjusted compression than IG names but all were tighter on the week.Gaming, Airlines, and Autos joined Monolines and Consumer Finance names as the best performing industries on the week. Software, Lodging, Labs & Equipment, Diversified Manufacturing, and Banks were the laggards of the week (though all were tighter on average).
On a duration-adjusted basis, Intelsat, FLEX, Celestica, HSY, Lab Corp of America, Expedia, MOT, BofA, LUV, and GS were the worst performers. YRCW (tender deal), RESCAP (GMAC bailout III), ABK, BZH (equity raise), MBI, HOV, SFI, and HOC were the winners of the week. Notably the winners are dominated by HY and IG CDO-efficient names from yester-year suggesting some IG9-related correlation book management at play.
Modest dollar weakness this week saw gold spring $40 higher, oil take-off above $80, and stocks surge almost 3%. While 10Y TSY interestingly was UNCH, the TSY complex was far more nuance with a considerable sell-off in 30Y, rally in 2Y and very much a barbell in 5Y. It seemed that 10Y was the pivot point chosen by many even as 2s10s and 2s30s reached back up to record steeps.
Index/Intrinsics Changes from 12/31 close
CDR LQD 50 NAIG -3.64bps to 68.87 (8 wider - 41 tighter <> 29 steeper - 21 flatter).
CDX13 IG -8.11bps to 77.5 ($0.37 to $100.97) (FV -7.16bps to 76.35) (8 wider - 113 tighter <> 62 steeper - 63 flatter) - No Trend.
CDX13 HVOL -15.2bps to 130 (FV -14.98bps to 137.52) (1 wider - 29 tighter <> 13 steeper - 17 flatter) - Trend Tighter.
CDX13 ExHVOL -5.87bps to 60.92 (FV -4.97bps to 57.44) (7 wider - 88 tighter <> 46 steeper - 49 flatter).
CDX13 HY (30% recovery) Px $+1.35 to $100.625 / -34.3bps to 484.1 (FV -49.1bps to 463.3) (6 wider - 90 tighter <> 50 steeper - 48 flatter) - No Trend.
LCDX12 (65% recovery) Px $+1.49 to $105.65 / -39.39bps to 382.18 - Trend Tighter.
MCDX12 -3bps to 132bps. - No Trend.
CDR Counterparty Risk Index fell 5.8bps (-6.65%) to 81.33bps (4 wider - 10 tighter).
CDR Government Risk Index fell 2.51bps (-3.75%) to 64.54bps..
DXY weakened 0.51% to 77.46.
Oil rose $3.54 to $82.9.
Gold rose $39.85 to $1136.8.
VIX fell 3.55pts to 18.17%.
10Y US Treasury yields fell 0.1bps to 3.84%.
S&P500 Futures gained 2.78% to 1141.6.
Single-Name Movers since 12/31
This week's biggest absolute movers in IG were Motorola Inc. (+5.5bps), Southwest Airlines Co. (+3.5bps), and Eastman Chemical Company (+1.82bps) in the wideners, and International Lease Finance Corp. (-117.49bps), Valero Energy Corp. (-61.5bps), and American International Group, Inc. (-45.73bps) in the tighteners. This week's biggest percentage movers in IG were Eastman Chemical Company (+3.98%), Motorola Inc. (+3.93%), and Southwest Airlines Co. (+2.92%) in the wideners, and Valero Energy Corp. (-29.01%), Kinder Morgan Energy Partners LP (-24.11%), and Altria Group Inc (-22.13%) in the tighteners.
In the more financial-heavy CDR NAIG LQD 50 index, sentiment is mixed with 8 wider to 41 tighter, and 29 steeper to 21 flatter as none of the 50 credits have inverted curves. The biggest absolute movers were Cisco Systems Inc. (+5.25bps), Bank of America Corp. (+3.88bps), and Southwest Airlines Co. (+3.5bps) in the wideners, and Simon Property Group, L.P. (-19.37bps), Xerox Corp. (-17.25bps), and Berkshire Hathaway Inc (-14.61bps) in the tighteners. The biggest percentage movers in the CDR NAIG LQD 50 were Cisco Systems Inc. (+13.38%), Walt Disney Company/The (+7.28%), and Bank of America Corp. (+3.93%) in the wideners, and Target Corporation (-15.24%), TJX Companies, Inc./The (-14.14%), and Staples Inc. (-14.11%) in the tighteners.
In the names of the HY index, this week's biggest percentage movers were Flextronics International Ltd. (+6.38%), Celestica Inc. (+5.21%), and Intelsat Ltd (+2.45%) in the wideners, and Residential Capital, LLC (-38.66%), Beazer Homes USA Inc (-22.35%), and American Axle & Manufacturing Inc (-18.2%) in the tighteners. The largest absolute movers in HY were Flextronics International Ltd. (+15bps), Celestica Inc. (+12.51bps), and Intelsat Ltd (+11.49bps) in the wideners, and Residential Capital, LLC (-480.75bps), AMR Corp (-317.29bps), and Radian Group Inc (-225.26bps) in the tighteners.
The CDR Counterparty Risk Index Series 2 (of brokers and banks) fell -5.8bps (or -6.65%) to 81.33bps. Bank of America Corp. (3.88bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Bank of America Corp. (3.93%) is the worst (relative) performer. Royal Bank of Scotland Group Plc (-23.98bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Royal Bank of Scotland Group Plc (-17.32%) is the best (relative) performer.
The CDR Aussie Index fell -4.93bps (or -6.39%) to 72.21bps. CSR Limited (-0.09bps) is the worst (absolute) performer, whilst CSR Limited (-0.12%) is the worst (relative) performer. Qantas Airways Ltd (-11.69bps) is the best (absolute) performer, and Commonwealth Bank of Australia (-11.97%) is the best (relative) performer.
The CDR Asian Index fell -8.83bps (or -8.65%) to 93.28bps. Samsung Electronics Co., Ltd. (0.91bps) is the worst (absolute) performer, whilst Samsung Electronics Co., Ltd. (1.59%) is the worst (relative) performer. Promise Co Ltd (-103.7bps) is the best (absolute) performer, and East Japan Railway Company (-24.71%) is the best (relative) performer.