20160621-法国巴黎银行-US_MACRO_CREDIT_AND_X-ASSET_RELATIVE_VALUE_VIEWS_28页_1mb

US MACRO CREDIT AND X-ASSET RELATIVE VALUE VIEWS

Core Views

• Macro Overview:
  US credit markets experienced a strong rally following the Fed's dovish stance and improved European sentiments. IG26 rallied to 79bp from intra-day wides of 88bp. At current levels (81bp), the upside and downside risks from Europe-related events are similar.

  • If Europe-related risks do not materialize, IG26 is expected to trade around 72-73bp.
  • If risks materialize, IG26 may trade around 90bp or wider, reflecting a risk-off environment.
  • The next critical events are the July Payrolls and the FOMC meeting on July 27. If risks materialize, central banks are expected to provide liquidity support, leading to a gradual recovery in risk markets.
  • Other macro concerns (US growth, China debt, European banking) are not expected to become prominent, reducing the likelihood of major tail risks.

• Credit-Equity:

  • Long-credit/short-equity trades have similar upside/downside potential at current levels, hence the view is neutral.
  • If credit becomes cheaper relative to equity, a long-credit/short-equity trade is recommended.

• Compression/Decompression:

  • The HY26/IG26 relationship is trading at 5.46.
  • If Europe-related risks do not materialize, the following trades are considered attractive: long-HY/short-EM, short-HY/long-IG, and short-HY/long-XO.
  • The view is neutral to slightly bullish on the basis, as the Fed's dovishness is expected to keep it range-bound or tighter.

• Credit Index Skew:

  • Skew is expected to move less negative in a risk-off scenario and more negative in a risk-on scenario.
  • The current risk-off environment provides an attractive opportunity for investors looking to unwind their skew packages.

• US Credit Volatility:

  • Both US credit volatility and skew have spiked due to increased protection buying and OTM payers.
  • Volatility has spiked most in the front-end.
  • HY credit vols are still lower than IG credit vols, and this trend is expected to continue in the short term.

• CDS-Cash Basis (Single Name):

  • The basis is neutral to slightly bullish at current levels.
  • The IG index is trading at a skew of -7bp, with an implied basis of -49bp.
  • Single name basis packages with significant negative values are considered attractive in the current macro environment.

• CDX-Cash Basis (ETF):

  • Dovish central banks support the basis, while hawkish ones are negative.
  • The IG-LQD basis has recovered to levels seen last summer and is expected to remain range-bound.
  • The HY-HYG basis is driven by energy exposure, with higher oil prices being supportive for the basis.

Trade Updates/Close

• Trade Update:

  • Trade Idea: Sell IG26 July expiry 68 strike receiver, and buy July expiry 80-90 strike payer spread on 100mm notional.
  • Trade Update: Closed the 80 strike payer at 26 cents, resulting in a P&L of +260K.
  • Remaining Position: A July expiry short straddle with 68/90 strikes, breakeven at 63bp and 95bp.
  • Expectation: IG26 is expected to trade within this range, with a net short-credit position if it moves outside.

• Trade Close:

  • Trade Idea: Buy 50mm IG26 July expiry 80 strike payer at 30 cents, and sell 13.6mm USSW10Y July expiry 1.68 strike rate swaptions at 110 cents.
  • Trade Close: Closed at a P&L of -65K, with a range of +125K to -115K.
  • Reason for Closure: The original thesis has changed due to the Fed's dovish stance and improved credit conditions.
  • Impact: The rally in credit rates caused a negative P&L for the trade.

Synthetic Credit Overview

• CXD IG and HY Index Outlook:
  • IG26 has lower exposure to oil and commodities compared to IG25.
  • IG26 would trade tighter than IG25's 128bp in a similar risk-off scenario.
  • Energy names in IG26 do not trade at levels similar to those in Feb 2016, as they have improved their credit profile.
  • The energy sector contributes about 20bp to IG26, while retail contributes 14-15bp.
  • The HY26/IG26 compression/decompression relationship is less affected by oil prices compared to previous series.
  • A commodities sell-off could drive decompression in the HY26/IG26 relationship.
  • Net long positioning in IG26 and HY26 is at levels close to the highs of last November, which is generally bearish.

Index Sector Contribution

Credit Index (CDX IG/HY) Volatility and Skew

• CDX IG:

  • ActQuote: 80.25bp
  • Skew: -7.23bp
  • TheoQuote: 87.48bp
  • Volatility has spiked, especially in the front-end.
  • The 3M-1M vol differential is 4%, while in Main it is 15%.
  • The index-to-cash portfolio has an implied basis of -49bp.

• CDX HY:

  • ActQuote: 437.90bp
  • Skew: -14.68bp
  • TheoQuote: 452.58bp
  • HY credit vols are still lower than IG credit vols, and this trend is expected to continue in the short term.

CDX Index Options: Strategies

CDX IG26 (Expiry: Aug 17, 2016)

CDX HY26 (Expiry: Aug 17, 2016)

Summary of Key Metrics

• IG26:

  • Current level: 80.25bp
  • Skew: -7.23bp
  • TheoQuote: 87.48bp
  • 3M Implied Vol: 49.18%
  • Index Carry: 12 cents

• HY26:

  • Current level: 437.90bp
  • Skew: -14.68bp
  • TheoQuote: 452.58bp
  • 3M Implied Vol: 46.34%
  • Index Carry: 78 cents

• Volatility:

  • IG26: 3M-1M vol differential is 4%
  • Main: 3M-1M vol differential is 15%
  • HY26: Still lower than IG26, with a trend expected to continue.

• Basis:

  • IG single name basis: -42bp
  • HY single name basis: -55.57bp
  • IG index basis: -7bp
  • HY index basis: -14.68bp

• Straddle Breakeven:

  • IG: 63bp and 95bp
  • HY: 99bp and 105bp

• Key Events:

  • July Payrolls and FOMC meeting on July 27 are the next critical events.
  • If Europe-related risks materialize, IG26 may trade wider, and the Fed's support is expected to drive a gradual recovery.

• RV Trades:

  • Long-HY/short-EM, short-HY/long-IG, short-HY/long-XO are considered attractive if Europe-related risks do not materialize.
  • Short-IG/long-EM, long-IG/short-HY, long-IG/short-XO may be initiated if the Fed remains dovish.