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The Roll Exposed

20 March 2018 by lberuti

Today was the day the maturity of “standard” CDS is extended by 6 months. Contracts maturing in June 2023 became officially the reference for what market participants call 5-year CDS, taking over from December 2022 contracts. Data displayed on DataGrapple follow the same rule. What you now see when you click on “5Y” in the top right corner of this grapple are the risk premia of contracts maturing in June 2023, while yesterday you got the risk premia of contracts maturing in December 2022. Considering that the fair value of 5-year iTraxx Crossover series 28 hardly moved – its daily change amounted to less than 1bp tighter -, one could say that risk premia in the European High Yield universe did not change on the day. Hence today’s daily changes give a fairly accurate estimate of the risk premium difference between June 2023 and December 2022 contracts. This grapple shows you the extra premium you are asked to pay (or that you can expect to receive) to extend the maturity of a position by 6 months.