Spreads were broadly wider in the US as all the indices deteriorated (as IG underperformed HY and made new June wides). Indices generally outperformed intrinsics with skews mostly narrower as IG underperformed but narrowed the skew, HVOL outperformed but widened the skew, ExHVOL intrinsics beat and narrowed the skew, XO's skew increased as the index outperformed, and HY outperformed but narrowed the skew.
The names having the largest impact on IG are Transocean Ltd. (-4.16bps) pushing IG 0.03bps tighter, and CIT Group Inc (+65.04bps) adding 0.37bps to IG. HVOL is more sensitive with International Lease Finance Corp. pushing it 0.06bps tighter, and CIT Group Inc contributing 1.65bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Transocean Ltd. (-4.16bps) pushing the index 0.04bps tighter, and Valero Energy Corp. (+16bps) adding 0.16bps to ExHVOL.
The price of investment grade credit fell 0.28% to around 98.77% of par, while the price of high yield credits fell 0.25% to around 85.63% of par. ABX market prices are lower by 0.55% of par or in absolute terms, 1.45%. Broadly speaking, CMBX market prices are lower by 0.77% of par or in absolute terms, 0.27%. Volatility (VIX) is up 2.66pts to 30.81%, with 10Y TSY rallying (yield falling) 8.1bps to 3.72% and the 2s10s curve flattened by 4.1bps, as the cost of protection on US Treasuries rose 0.13bps to 45bps. 2Y swap spreads tightened 1.4bps to 40.33bps, as the TED Spread widened by 0.5bps to 0.46% and Libor-OIS improved 1.3bps to 40bps.
The Dollar strengthened with DXY rising 1.23% to 81.128, Oil falling $1.55 to $70.49 (underperforming the dollar as the value of Oil (rebased to the value of gold) fell by 1% today (a 0.92% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $10.95 to $928.35 as the S&P is down (923.6 -2.23%) underperforming IG credits (129bps -0.28%) while IG, which opened wider at 125.75bps, outperforms HY credits. IG11 and XOver11 are +4.91bps and +33.34bps respectively while ITRX11 is +5.65bps to 113.5bps.
The majority of credit curves flattened (curve steepeners unwinds) 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 rose +4.4bps 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 today indicating a less systemic and more idiosyncratic narrowing of the distribution of spreads.
53% of IG credits are shifting by more than 3bps and 63% of the CDX universe are also shifting significantly (more than the 5 day average of 48%).
