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Should We Brace Ourselves For A Squeeze?

21 May 2015 by lberuti

The day begun in a very similar fashion to yesterday, and despite heavy action in the credit index option space, the different indices hardly moved at all. Their fair values stayed in a very narrow range as well. But while the single names kept on trading in a similar fashion during the afternoon (the fair value of iTraxx Main closed the day unchanged at 61.2bps and the fair value of iTraxx Crossover closed 0.5bps tighter @ 281.9bps), credit indices started to move tighter in unison during the last 3 hours, pushing bases into negative territory. Bases are at their most negative in a month (the index risk premia are tighter than their theoretical value computed using their constituents) and that could signal a change in investors’ perception of the European risk… at least in the near future.