21 July 2017 by lberuti
Since the beginning of the year, investment grade credits had an impressive run in the US. The risk premium of CDX IG, which references the most liquid US companies, went from 66bps to 57bps, even though its maturity has been extended by 6 months, which the market values currently at 8.5bps. The performance of the average risk premium is effectively 17.5bps, ie more than 25%. But that pales in comparison with the performance of iTraxx Main. The risk premium of the European benchmark went from 69bps to 52bps, going through a maturity extension worth 6.5bps. The tightening is an impressive 23.5bps, ie 34%. The difference between the US and European indices comes mainly from banks which are not included in CDX IG. On average, the 5-year risk premia of European Banks has been halved, trading from 95.5bps to 47.5bps. Among them, the worst performer is HBOS – which only tightened by 28% from 65bps to 46bps – and the bests in class are STANLN, BNP, SANTAN and INTNED – which tightened by roughly 60% to 42bps, 35bps, 47bps and 28bps respectively -. No wonder they seem to have reached some kind of floor.