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Mind The Gap

13 November 2020 by jbchevrel

Today in the US, it was a story of single-name CDS wider and CDS indices unchanged, or very close to unchanged (London c2c). That argues for more CDXIG/Main widening going forward, as the differential of their fair values is now +3.3bp, on our European close for today. S&P futures were quite solid today (3570 as I write, vs less than 3520 at 0200 LDN) and probably explain why CDX indices stood firm. Flow-wise, it was reported that Stock Funds attracted a record inflow after Pfizer news, adding $44.5 billions in the week through Nov 11 (BoA/EPFR). However we saw the respective Fair Values of CDX IG and HY widen by +1.5bp and +7bp, today. Crude prices coming off from about $42 to about $40 have lifted the cost of protection on certain names especially in HY (OXY +50 MUR +50 APA +26) but also in IG (OVV +12 DVN +10 CNQ +8 HES +7). The build-up in crude inventories (reported yesterday by the DoE) had not impacted oil prices materially yesterday, despite that being reminiscent of the 1st lockdowns. This is probably because refined products were pointing towards a different picture. The CDS market has now had a week to weigh the implications of the Pfizer news that hit us, right after the weekend when Joe Biden was officially President elect. Some sectors are clearly retracing wider. The spreading of COVID is intensifying in the US, in particular in NYC. We seem to edge closer to the point where NYC schools will have to close (3% 7dma on test positivity rate being the criteria – 2.8% here). US consumer sentiment unexpectedly fell in early Nov (increase in COVID cases, election): UMich sentiment fell to 77 (exp 82 prev 82). High-beta retail issuers was another area of softness today. SPLS was wider +50 and the recent fallen angels also retraced (JWN +33 FD +33). Finally, travelling-oriented CDS were close to unchanged. Our European close sees the marks of AAL UAL RCL and CCL close to Thursday’s levels.