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Weekly/YTD Credit Summary: January 15
This week has been noticeably weak for credit markets as they underperformed equity markets, fitting with our aggregate capital-structure model perspective. IG-HY has decompressed rather well buy the intrinsics have decompressed considerably more as market breadth is dominated by wideners and steepeners.
In Europe, Financials underperformed non-financials but TMT was the worst relative sector of all with a safety bid for Energy and Utes specifically coming back. In the US a similar picture though FINLs did not start lagging until towards the end leaving non-financials as underperformers but we suspect merely from a timing perspective.
We thought it might be interesting to look at some of the trends of the last two weeks as we entered this somewhat 'twilight zone'ish early OPEX week which just happened to culminate in the fibonacci extension date from the markets most recent swing high and low dates (try it to be spooked out - 10/11/07 - 03/06/09 = 512 days *61.8%Fib = 316 days -> add 316 days to 03/06/09 and you get to 01/16/10 tomorrow which happens to coincide with a lunar eclipse).
Enough of that silliness, ABX and CMBX prices fell on the week led by the higher quality tranches and most recent vintages and builders and monolines also felt pain on the week. Most financials were sold this week and their curves steepened up considerably in the short-end but broad based protection buying in Insurers, consumer finance and even the majors seemed to provide some early warning for what is to come as we have not seen a multi-day move like this in the broad financials since Q2 last year.
HY-IG, XOver-Main, FINLs Senior-Subs, and HY-LCDX all so decompression this week as SovX stormed 11bps wider (13bps intrinsics) thanks to some huge lags in Greece and Portugal mainly.
Commentary compliments of www.creditresearch.com
Index/Intrinsics Changes since last Friday
CDR LQD 50 NAIG +7.32bps to 76.24 (46 wider - 4 tighter <> 24 steeper - 26 flatter).
CDX13 IG +6bps to 83.5 ($-0.25 to $100.71) (FV +8.5bps to 84.6) (120 wider - 4 tighter <> 53 steeper - 70 flatter) - Trend Wider.
CDX13 HVOL +5bps to 135 (FV +12bps to 148.68) (26 wider - 4 tighter <> 8 steeper - 22 flatter) - Trend Wider.
CDX13 ExHVOL +6.32bps to 67.24 (FV +7.42bps to 64.81) (94 wider - 1 tighter <> 50 steeper - 45 flatter).
CDX13 HY (30% recovery) Px $-0.75 to $99.88 / +18.9bps to 503 (FV +24.02bps to 486.7) (87 wider - 11 tighter <> 41 steeper - 57 flatter) - Trend Wider.
ITRX12 Main +6.75bps to 74.25 (FV +8.71bps to 74.85) (124 wider - 1 tighter <> 72 steeper - 53 flatter) - Trend Wider
ITRX12 HiVol +9.75bps to 105 (FV +11.46bps to 105.23) (30 wider - 0 tighter <> 16 steeper - 14 flatter) - Trend Wider
ITRX12 LoVol +5.8bps to 64.54 (FV +7.85bps to 65.38) (94 wider - 1 tighter <> 39 steeper - 56 flatter) - Trend Wider
ITRX12 XOver +19bps to 414 (FV +27.34bps to 432.54) (43 wider - 2 tighter <> 22 steeper - 23 flatter) - Trend Wider
LCDX12 (65% recovery) Px $-0.25 to $105.38 / +6.48bps to 389.05 - Trend Wider.
MCDX12 +19.5bps to 151.5bps. - Trend Wider.
CDR Counterparty Risk Index rose 11.71bps (14.35%) to 93.31bps (14 wider - 0 tighter).
CDR Government Risk Index rose 6.95bps (10.76%) to 71.57bps..
DXY weakened 0.34% to 77.21.
Oil fell $4.8 to $77.95.
Gold fell $7.32 to $1130.93.
VIX fell 0.22pts to 17.91%.
10Y US Treasury yields fell 15.8bps to 3.68%.
S&P500 Futures lost 0.81% to 1132.3.
This week's biggest absolute movers in IG were International Lease Finance Corp. (+64.09bps), Johnson Controls Inc (+35bps), and Metlife, Inc. (+30bps) in the wideners, and Capital One Bank (-2.5bps), Simon Property Group, L.P. (-2.25bps), and Boston Properties L.P. (-2bps) in the tighteners. This week's biggest percentage movers in IG were Johnson Controls Inc (+46.67%), Progress Energy Inc (+30.53%), and Marsh & McLennan Companies, Inc. (+29.77%) in the wideners, and Capital One Bank (-3.57%), American Express Company (-2.21%), and Simon Property Group, L.P. (-1.95%) in the tighteners.
In the names of the HY index, this week's biggest percentage movers were Clear Channel Communications Inc (+21.44%), Chesapeake Energy Corp. (+18.41%), and Pride International Inc. (+16.67%) in the wideners, and Residential Capital, LLC (-20.59%), MGM Mirage Inc (-8.64%), and Harrah's Operating Co Inc (-7.81%) in the tighteners. The largest absolute movers in HY were Clear Channel Communications Inc (+238.04bps), Radian Group Inc (+131.13bps), and Level 3 Communications Inc. (+97.56bps) in the wideners, and Residential Capital, LLC (-156.84bps), Harrah's Operating Co Inc (-91.84bps), and MGM Mirage Inc (-75.44bps) in the tighteners.
The CDR Counterparty Risk Index Series 2 (of brokers and banks) rose 11.71bps (or 14.35%) to 93.31bps. Citigroup Inc (24.25bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Credit Suisse Group (22.43%) is the worst (relative) performer. Dresdner Bank AG (3.1bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Dresdner Bank AG (5.09%) is the best (relative) performer.
This week's biggest absolute movers in Main were Hellenic Telecommunications Organization SA (+38.75bps), WPP 2005 Limited (+26bps), and Glencore International AG (+25bps) in the wideners, and SABMiller plc (-5.68bps), Electricite de France SA (+0.5bps), and Vinci SA (+0.97bps) in the tighteners. This week's biggest percentage movers in Main were Hellenic Telecommunications Organization SA (+46.41%), Muenchener Rueckversicherungs AG (+38.93%), and Hannover Rueckversicherung AG (+38.42%) in the wideners, and SABMiller plc (-6.41%), Alstom (+1.29%), and Vinci SA (+1.37%) in the tighteners.
In the names of the XOver index, this week's biggest percentage movers were Porsche Automobil Holding SE (+28.03%), Clariant AG (+27.64%), and Kabel Deutschland GmbH (+20.72%) in the wideners, and TUI AG (-7.88%), DSG International plc (-6.36%), and Thomson S.A. (0%) in the tighteners. The largest absolute movers in XOver were Ineos Group Holdings plc (+165.94bps), Norske Skogindustrier ASA (+148.77bps), and Grohe Holding GmbH (+93.08bps) in the wideners, and TUI AG (-63.9bps), DSG International plc (-35bps), and Thomson S.A. (0bps) in the tighteners.
Since the Start of 2010...
We see a slightly different picture evolve as spreads remain slightly tighter from 12/31 close with FINLs still leading the way as non-financials are mostly wider on average. Breadth is negative around 4to3 as the indices have handily outperformed intrinsics in IG and ExHVOL but not so in HY. Credit has underperformed equity since the start of 2010 (once again fitting wit hour model perspective) and there is more room to go yet on this.
ENRG names performed the best of the non-financials with INDUstrials worst and TMT and CONSumers even. High beta names remain the underperformers as the up-in-quality theme seems stuck in but we caution that the lower floor on spreads have been lifted by sovereign systemic risk rising. Having said this about up-in-quality and high beta underperformance, at the index level HY intrinsics have far outperformed IG intrinsics in US and EUR indices as we wonder if the HY aspect was arb unwinds as the skew compressed to near zero.
In TSYs, we have seen a notable duration-adjusted shift out of 2-5Y and into the 5-10Y segment with selling at the 30Y. This barbelling strategy seems more about reaching for yield as well as hedging HY corporates and we would expect to see more 30Y selling to fit with the whole curves duration-adjusted shift.
Index/Intrinsics Changes since 12/31/09
CDR LQD 50 NAIG +3.57bps to 76.39 (34 wider - 15 tighter <> 24 steeper - 26 flatter).
CDX13 IG -2.11bps to 83.5 ($0.12 to $100.71) (FV +1.3bps to 84.58) (85 wider - 37 tighter <> 58 steeper - 67 flatter) - Trend Wider.
CDX13 HVOL -6.2bps to 139 (FV -3.47bps to 148.66) (14 wider - 16 tighter <> 9 steeper - 21 flatter) - Trend Wider.
CDX13 ExHVOL -0.82bps to 65.97 (FV +2.39bps to 64.78) (71 wider - 24 tighter <> 46 steeper - 49 flatter).
CDX13 HY (30% recovery) Px $+0.6 to $99.88 / -15.4bps to 503 (FV -25.02bps to 486.5) (38 wider - 60 tighter <> 36 steeper - 63 flatter) - Trend Wider.
ITRX12 Main +0.7bps to 74.25 (FV +1.18bps to 74.85) (76 wider - 48 tighter <> 57 steeper - 68 flatter) - Trend Wider
ITRX12 HiVol +0.46bps to 105 (FV -0.31bps to 105.23) (13 wider - 16 tighter <> 8 steeper - 22 flatter) - Trend Wider
ITRX12 LoVol +0.78bps to 64.54 (FV +1.64bps to 65.38) (63 wider - 32 tighter <> 46 steeper - 49 flatter) - Trend Wider
ITRX12 XOver -17.76bps to 414 (FV -34.38bps to 432.53) (18 wider - 25 tighter <> 14 steeper - 31 flatter) - Trend Wider
LCDX12 (65% recovery) Px $+1.24 to $105.38 / -32.81bps to 389.05 - Trend Wider.
MCDX12 +16.5bps to 151.5bps. - Trend Wider.
CDR Counterparty Risk Index rose 6.18bps (7.09%) to 93.31bps (11 wider - 3 tighter).
CDR Government Risk Index rose 4.52bps (6.75%) to 71.57bps..
DXY weakened 0.83% to 77.21.
Oil fell $1.41 to $77.95.
Gold rose $33.98 to $1130.93.
VIX fell 3.77pts to 17.91%.
10Y US Treasury yields fell 16.1bps to 3.68%.
S&P500 Futures gained 1.94% to 1132.3.
The biggest absolute movers in IG were Metlife, Inc. (+25bps), Hartford Financial Services Group (+22.02bps), and Marsh & McLennan Companies, Inc. (+17.5bps) in the wideners, and International Lease Finance Corp. (-52.93bps), Valero Energy Corp. (-47bps), and American International Group, Inc. (-37.81bps) in the tighteners. The biggest percentage movers in IG were Universal Health Services Inc (+26.76%), Marsh & McLennan Companies, Inc. (+25.93%), and Eastman Chemical Company (+25.88%) in the wideners, and Valero Energy Corp. (-22.17%), Kinder Morgan Energy Partners LP (-21.43%), and ERP Operating LP (-14.45%) in the tighteners.
In the names of the HY index, the biggest percentage movers were Flextronics International Ltd. (+17.02%), Celestica Inc. (+16.67%), and Pride International Inc. (+16.67%) in the wideners, and Residential Capital, LLC (-51.23%), Harrah's Operating Co Inc (-20.95%), and Beazer Homes USA Inc (-19.2%) in the tighteners. The largest absolute movers in HY were Clear Channel Communications Inc (+82.59bps), Dynegy Holdings Inc. (+60.18bps), and Level 3 Communications Inc. (+59.22bps) in the wideners, and Residential Capital, LLC (-635.59bps), AMR Corp (-363.45bps), and Harrah's Operating Co Inc (-287.06bps) in the tighteners.
The biggest absolute movers in Main were Hellenic Telecommunications Organization SA (+22.01bps), Portugal Telecom International Finance B.V. (+20.67bps), and Telefonica SA (+14.66bps) in the wideners, and Bank of Scotland plc (-12.48bps), Royal Bank of Scotland Group Plc (-12.24bps), and Vinci SA (-11.5bps) in the tighteners. Today's biggest percentage movers in Main were Portugal Telecom International Finance B.V. (+29.71%), Hellenic Telecommunications Organization SA (+21.96%), and TNT N.V. (+21.17%) in the wideners, and Vinci SA (-13.86%), Zurich Insurance Company (-12.82%), and Veolia Environnement (-12.35%) in the tighteners.
In the names of the XOver index, the biggest percentage movers were Clariant AG (+26.43%), Porsche Automobil Holding SE (+15.63%), and Kabel Deutschland GmbH (+11.67%) in the wideners, and DSG International plc (-25.08%), Seat Pagine Gialle SpA (-24.67%), and TUI AG (-24.43%) in the tighteners. The largest absolute movers in XOver were Kabel Deutschland GmbH (+42.34bps), Virgin Media Finance PLC (+28.44bps), and Clariant AG (+27.75bps) in the wideners, and Seat Pagine Gialle SpA (-391.01bps), TUI AG (-241.66bps), and NXP b.v. (-220.01bps) in the tighteners.
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Marla!!!!!!!!!!!!!!
Marla!!!!!!!!!!!!!!!11
My most humble appoligies. I will punish myself for offending; You must spin!
Tyler you are my personal Jesus.
whoa, whoa, what is this crazy technically-oriented analysis being done here?
TA, fib, lunar cycles AND IG run rates ... how refreshing to see actual #'s of import.
really do appreciate these IG updates. great stuff.
thank you, TD & CDR.