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What Happened To Financials ??

21 September 2017 by lberuti

A couple of days ago, iTraxx Financials Senior (ITXES) - which references European banks and insurance companies - was trading 4bps tighter than iTraxx Main (ITXEB) - which references the most liquid European investment grade companies including the earlier mentioned 30 financials -. It was the situation on series 27, but that all changed with the introduction of the series 28. Markit has decided to issue ITXEB under revised index rules. Even though the names of the banks included in the indices are the same at first glance, UK and Swiss banks are now included at HoldCo level rather than the less risky Operating level of the previous index series. For each concerned entity, the difference is substantial. The risk premia ratio of the HoldCo compared with the OpCo ranges from 1.5 for HSBC (27bps for the OpCo and 41bps for the HoldCo) to almost 2 for UBS (26bps for the OpCo and 49bps for the HoldCo). From series 27 to series 28, the change added roughly 6bps to ITXES and 1.5bps to ITXEB. It explains the whole underperformance of ITXES during the past 5 trading sessions.