Daily Credit Summary: November 24 - Balance

Spreads closed marginally wider today amid low volumes as single-name CDS breadth was negative and financials underperformed non-financials. A plethora of data and news today kept equity indices guessing all day (and HY credit) but IG seemed pretty stable as intrinsics and indices saw marginal widening and steepening across the curve although HY felt generally weaker than either IG or stocks all day.

Intraday ranges were very low for both IG and HY, as the former held above 100bps all day (and above its 50-day moving average) but closed below its Friday level still. HY could not trade tighter than the magical 666bps again and underperformed IG today (albeit both with marginal net changes) as HY underperformed the S&P. The dollar (DXY) ended the day marginally higher (unable to break below 75 again) and in a strange twist, Gold also rallied modestly though oil fell.

Indices marginally underperformed intrinsics (as the liqudity seemed focused there) as we note that IG shorts remain profitable from inception (carry-adjusted) and HY shorts are around 15-20bps underwater (including the CIT settle) from inception.

After digesting CIT risk yesterday, IG curves were a little more active today with some settling at new levels. IG10 and 11 outperformed, IG8, 9, 12, and 13 underperformed with slight steepening in the latter two indices. The index skews steepened notably with short-end skews compressing more than longer-end skews, but skews in general remain inverted with the short-end indices rich and long-end cheap, with the very short-end dominated by assumptions over tail names like MBI but indices appear a little cheap.

Transportation (YRCW impacting the Capital Goods sector in general), Gaming, and Telecom Equipment were the weakest industries today. Capital Goods (as a sector) moved notably weaker intraday from reasonable performance (ex YRCW) near the open to one of the weakest performances by the close.

The majority of credit curves flattened as the vol term structure steepened with VIX/VIXV decreasing implying a more bearish/more volatile short-term outlook (normally indicative of short-term spread decompression expectations), and additionally the ratio has dropped below 0.9x which is exceptionally bearish for stocks and spreads.

In IG, wideners outpaced tighteners by around 3-to-2, with 52 credits notably wider. By sector, CONS saw 38% names wider, ENRGs 41% names wider, FINLs 48% names wider, INDUs 35% names wider, and TMTs 50% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG13 exFINLs) with the former trading at 86.59bps and the latter at 92.51bps.

Autos, Airlines, and Homebuilders were among the better performers (with the latter more driven by HY names outperforming) along with Advertising and Cable names. This led the Consumer Cyclical sector to the best performance of the day. Banks underperformed REITs today though ABX and CMBX prices remained muted.

YRCW, Windstream (acqusition), Dynegy, AMD, CHK (watch for trade tomorrow). and Smithfield were the largest deteriorating credits based on DV01-weighted risk today but YRCW was the big one. BZH and HOV were the best performers of the day along with UAL, Cablevision Systems, Dillard's and Pride Intnl.

[WestLB was the name to watch in Europe today as the 'well-known' Friday deadline for recap loomed and spreads gapped wider on fears of failure. It appears that from an early gap that spreads leaked tighter all day and then towards the close, Germany agreed to fund the restructuring and in what looks like a good-bank / bad-bank model (the first for Germany), we saw senior spreads come back from their 165bps wides to the 120/140bps region (still 30-40bps wider than last night's close). Subs remained wider and this overall decompression helped drive ITRX FINLs Sen-Sub notably wider on the day bring up an interesting trade for those looking for low cost bets against FINLs (Sen-Sub vs SovX).]

Today's biggest absolute movers in IG13 were International Lease Finance Corp. (+9.35bps), FirstEnergy Corp (+6bps), and Du Pont E.I. de Nemours & Co (+4.38bps) in the wideners, and Vornado Realty LP (-5bps), Sara Lee Corp. (-4bps), and AT&T Mobility LLC (-3.5bps) in the tighteners. Today's biggest percentage movers in IG were Baxter International Inc. (+6.36%), Du Pont E.I. de Nemours & Co (+6.3%), and Halliburton Company (+4.04%) in the wideners, and AT&T Mobility LLC (-7.95%), Sara Lee Corp. (-6.72%), and Vornado Realty LP (-3.45%) in the tighteners.

In the names of the HY13 index, today's biggest percentage movers were Windstream Corporation (+7.14%), Aramark Corporation (+4%), and McClatchy Co./The (+3.26%) in the wideners, and Pride International Inc. (-6.54%), Clear Channel Communications Inc (-5.02%), and Residential Capital, LLC (-3.57%) in the tighteners. The largest absolute movers in HY were McClatchy Co./The (+50.16bps), Energy Future Holdings Corp. (+27.18bps), and Aramark Corporation (+25bps) in the wideners, and Clear Channel Communications Inc (-103.38bps), Residential Capital, LLC (-87.26bps), and Freescale Semiconductor, Inc. (-32.14bps) in the tighteners.

Today's biggest absolute movers in Main12 were Accor SA (+5.41bps), Koninklijke Ahold NV (+5.25bps), and Volvo AB (+5bps) in the wideners, and Bank of Scotland plc (-2.28bps), Iberdrola SA (-1.96bps), and Anglo American Plc (-1.5bps) in the tighteners. Today's biggest percentage movers in Main were Koninklijke Ahold NV (+6.67%), Deutsche Bank AG (+5.54%), and Unilever N.V. (+5.51%) in the wideners, and Iberdrola SA (-2.51%), Bank of Scotland plc (-1.74%), and European Aeronautic Defence and Space Company EADS N.V. (-1.66%) in the tighteners.

In the names of the XOver12 index, today's biggest percentage movers were British Airways Plc (+6.67%), Havas SA (+5%), and Porsche Automobil Holding SE (+3.31%) in the wideners, and Grohe Holding GmbH (-8.87%), NXP b.v. (-8.54%), and Seat Pagine Gialle SpA (-7.03%) in the tighteners. The largest absolute movers in XOver were British Airways Plc (+30bps), ISS Holding A/S (+19.25bps), and Alcatel-Lucent (+18.17bps) in the wideners, and NXP b.v. (-173.19bps), Seat Pagine Gialle SpA (-142.57bps), and Ineos Group Holdings plc (-114.63bps) in the tighteners.

Commentary compliments of www.creditresearch.com

Index/Intrinsics Changes
CDR LQD 50 NAIG +0.53bps to 92.79 (29 wider - 13 tighter <> 20 steeper - 27 flatter).
CDX13 IG +0.62bps to 102.5 ($-0.02 to $99.89) (FV +0.33bps to 108.99) (50 wider - 38 tighter <> 60 steeper - 62 flatter) - No Trend.
CDX13 HVOL 0bps to 186.25 (FV +0.76bps to 188.53) (12 wider - 5 tighter <> 11 steeper - 19 flatter) - No Trend.
CDX13 ExHVOL +0.82bps to 76.05 (FV +0.2bps to 84.58) (38 wider - 57 tighter <> 46 steeper - 49 flatter).
CDX13 HY (30% recovery) Px $-0.32 to $93.3125 / +9bps to 678.6 (FV +1.1bps to 612.98) (51 wider - 33 tighter <> 42 steeper - 51 flatter) - Trend Wider.
ITRX12 Main +1.5bps to 85.5 (FV +1.1bps to 82.38) (96 wider - 21 tighter <> 72 steeper - 51 flatter) - No Trend
ITRX12 HiVol +0.13bps to 136.13 (FV +1.74bps to 129.78) (26 wider - 3 tighter <> 18 steeper - 11 flatter) - No Trend
ITRX12 LoVol +1.93bps to 69.51 (FV +0.9bps to 67.7) (70 wider - 25 tighter <> 41 steeper - 54 flatter) - Sideways Trading
ITRX12 XOver +4.75bps to 526 (FV -7.69bps to 524.02) (28 wider - 13 tighter <> 24 steeper - 20 flatter) - Trend Wider
LCDX12 (60% recovery) Px $0 to $99.5 / 0bps to 564.53 - No Trend.
MCDX12 +10bps to 155bps. - Trend Wider.
CDR Counterparty Risk Index rose 0.9bps (0.92%) to 99.42bps (11 wider - 3 tighter).
CDR Government Risk Index rose 0.8bps (1.45%) to 56.05bps..
DXY strengthened 0.05% to 75.12.
Oil fell $1.52 to $76.04.
Gold rose $2.7 to $1168.8.
VIX fell 0.69pts to 20.47%.
10Y US Treasury yields fell 4.8bps to 3.3%.
S&P500 Futures lost 0.07% to 1103.