27 January 2014 by HCM
Over the last few sessions, the market has experienced some wild swings. Today for instance, the total variation of iTraxx Main 5y was more than 20bps, even though close to close the widening was limited to 2bps close to close. The velocity was such that single names struggled to keep pace with the indices, and most of them missed the last leg wider of the day. That led to a sharp increase in the basis between most indices and their theoretical value. It is now worth almost 1% of the cash price of the iTraxx Xover index and more than 25cts of the cash price of the iTraxx Main index. Even with a hampered liquidity in single name market given the recent volatility, we are definitely in arbitrage territory.