20110615_CAPCON_ChartBook

8/6/2019 20110615_CAPCON_ChartBook

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A UNIQUE SERVICE FOR INDIVIDUAL INVESTORS

www.capitalcontext.com @capitalcontext Capital Context LLC, 2011

IG credit spreads broke

above their 200DMA

HY credit spreads broke

above their 200DMA
http://www.capitalcontext.com/http://www.capitalcontext.com/


2/12



HY-IG differential at six month

wides. Interesting that demand

not stepped back in given

multiple expansion of last few

months in HY over IG ratio.

Each time rolling HY-IG beta

has dropped below 3x, we

have seen notable

decompression.


3/12



We warned of risk appetite changes in

Match and switched to outright

negative in April. Dramatically more

downside in credit still just from QE2.

HY realized vol finally breaking

upwards will tend to reduce

appetite further from reach-for-

yield perspective.


4/12


5/12



The preferred trade for HY derisking

was Short IG Insurers relative to IG

corporates. This is working very well as

Insurers are nothing more than levered

portfolios of HY debt.

One unique insight is the shift in

internal correlations among index

components. We warned when we saw

HY rise notably and now equity and IGcredit has joined it as systemic selling

is under way.


6/12



We strongly suggested thatwe would see HY realized vol

rising quicker than S&P 500

realized vol. This highly mean-

reverting relationship is

playing out as we expected.

The credit market (both

IG and HY) trade cheap to

equity/vol implied levels

credit anticipates and

equity confirms credit is

leading the way.


7/12



3Y 5Y 7Y 10Y

IG16 Index 61.30 99.81 114.52 128.67

Chg +5.77 +10.31 +6.33 +5.93

FV 56.03 96.13 119.49 135.58

Chg +5.30 +7.97 +7.36 +6.54

Main15 Index 77.47 110.38 125.78 136.51

Chg +6.42 +7.88 +8.20 +7.94

FV 79.30 114.55 129.32 140.78

Chg +6.69 +9.53 +8.89 +9.02

XOver15 Index 298.34 408.75 436.80 448.69

Chg +27.29 +38.75 +36.79 +35.46

FV 289.11 397.77 427.95 440.67Chg +29.91 +42.22 +41.91 +40.70

HY16 Index 367.98 506.26

Chg +55.98 +59.80

FV 353.39 487.23

Chg +44.17 +58.65

SovX Index 230.00

Chg +33.50

FV 223.19

Chg +31.02

FINLs Index 134.45 172.63 179.87 185.28

Chg +11.35 +15.88 +14.48 +12.56

FV 126.08 171.96 178.80 188.77

Chg +12.50 +20.26 +15.95 +16.17

FINLs-Main Index 56.98 62.25 54.09 48.78

Chg +4.93 +8.00 +6.28 +4.62

FV 46.78 57.42 49.49 47.99

Chg +5.81 +10.73 +7.06 +7.15

HiVol15 Index 114.98 160.75 180.21 194.08

Chg +17.90 +21.75 +20.62 +20.70

FV 113.19 159.12 179.05 193.13

Chg +17.30 +20.72 +19.08 +18.59

FINSUB Index 305.50

Chg +46.00

FV 290.92

Chg +43.72

Credit Market Performance since 5/31

IG Cheap to FV in 3Y &

5Y, Rich to 7Y & 10Y

3Y underperformed

relatively

Main FV cheap

due to FINLs

SovX liquidity

premium

FIN Sub index

liquidity premium


8/12



Last week saw Consumer Staples

diverge from fair-value but

Materials and Healthcare converge.

Contextual Cycle is reverting

back to fair-value.


9/12



Financials equities underperforming credit

the most. Energy credits outperformingequities the most in the last week.

Less credit underperformance as we move up in

quality. Equity underperforming credit. Bottom-line -> Up-In-Quality and Up-In-Capital-Structure

preference is very clear recently.


10/12


11/12



The change in implied vol rises

very notably across quality and

as the relative credit

performance (x-axis) over stocks.

Financial Systemic Risk near one-

year highs. +100% from Q4/09 lows


12/12



US bank CDS starting to catch up to

US bank bond spreads and equities

not a good sign at all!

US and European risk risingrapidly relative to Asian bank risk.

20110615_CAPCON_ChartBook

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