Spreads were tighter in the US as all the indices improved (with IG and HY at their tightest closes since 08/10 and rallying for the fifth day-in-a-row for the first time since the Dec08 roll). IG trades 10.4bps tight (rich) to its 50d moving average, which is a Z-Score of -1s.d.. At 111bps, IG has closed tighter on only 4 days so far this year (181 trading days). The last five days have seen IG diverging (bullishly) from its 50d moving average. Indices typically underperformed single-names with skews narrower with HVOL the most notable and talk of some index arb and tail hedge unwinds was heard.

We are starting to wonder whether the labor-day holiday combined with its proximity to the roll is driving shorts to cover early in a game-theoretic short's dilemma - certainly felt that way in equities on the other side of the equation today.

The names having the largest impact on IG are American International Group, Inc. (-101.66bps) pushing IG 0.63bps tighter, and Barrick Gold Corp. (+4.5bps) adding 0.04bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 2.77bps tighter (and along with ILFC almost 6bps), and Vornado Realty LP contributing 0bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Staples Inc. (-10bps) pushing the index 0.1bps tighter, and Barrick Gold Corp. (+4.5bps) adding 0.05bps to ExHVOL. (We note that the decompression in low spread names somewhat triggered by KFT's deal news, may be somewhat responsible for the compression at the high spread end of the index as super senior risk rises and hedges need to be adjusted across the capital structure - especially in a low liquidity environment).

The price of investment grade credit rose 0.12% to around 99.57% of par, while the price of high yield credits rose 1.25% to around 91% of par. ABX market prices are higher (improving) by 0.03% of par or in absolute terms, 0.2%. Broadly speaking, CMBX market prices are lower by 0.02% of par or in absolute terms, 0.01%. Volatility (VIX) is down 0.77pts to 23.55%, with 10Y TSY rallying (yield falling) 11.7bps to 3.36% and the 2s10s curve flattened by 8.5bps, as the cost of protection on US Treasuries fell 0.87bps to 22.5bps. 2Y swap spreads tightened 1.3bps to 32bps, as the TED Spread tightened by 0.2bps to 0.16% and Libor-OIS improved 1.3bps to 11.9bps.

The Dollar weakened with DXY falling 0.38% to 76.799, Oil rising $0.86 to $72.17 (outperforming the dollar as the value of Oil (rebased to the value of gold) rose by 0.79% today (a 0.83% rise in the relative (dollar adjusted) value of a barrel of oil), and Gold increasing $4.05 to $996.35 as the S&P rallies (1042 0.92%) outperforming IG credits (110.5bps 0.12%) while IG, which opened tighter at 113bps, underperforms HY credits. IG11 and XOver11 are -2.26bps and -4bps respectively while ITRX11 is -1bps to 87bps.