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Investors Worry About Greece

12 February 2015 by lberuti

Whatever they say, investors worry about Greece. That is best shown by the relationship between the US and European investment grade indices. Because of the different trajectories of their economies and because of their different exposure to the energy sector, the risk premium asked for CDXIG and iTraxx Main (ITXEB) had been on a diverging path since October. For months CDXIG had consistently underperformed ITXEB. From trading flat to each other, CDXIG ended 14bps wider than ITXEB on the 26th January. That all changed with the outcome of the Greek elections. Despite a brief respite during the first week of February, ITXEB has underperformed CDXIG by 6bps since then. That underperformance comes of course from the behaviour of their respective constituents, with banks weighting on ITXEB (they are not represented within CDXIG). But half of it comes from a change in basis, which has gone from -23cts to +4cts (that is a change 5.5bps) for ITXEB since the 26th January while it has gone from -32cts to -24cts on CDXIG (that is a change of 2bps). Investors have been much busier buying systemic protection against an accident in Europe (either directly on indices or via options) than they have been in the US.