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In A World Of Their Own

22 March 2018 by lberuti

With a relatively hawkish Fed yesterday, the market started on a fairly weak note, and that tone persisted throughout the session. Overall risk markets traded poorly and equities were the most impacted, dragging credit along for the ride. But in comparison, the latter felt almost bullish, and, to some extent, some of the flows were. If credit indices closed wider across the board, sellers of volatility flocked the market. Despite the spike in VIX - which is back above 20% -, the implied volatility of options on iTraxx indices maturing in one month ended the day down 2 to 3 points, pushed lower by outright sellers and people rolling short volatility positions they hold on series 28 into series 29. So, at the end of the day, we had equities down by 2%, VIX up 3points, iTraxx Main and Crossover wider by 2 and 7bps respectively, but credit implied volatility down across the board. At some stage, some bigger hedging flows should surely materialise.