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2021 Starts Wider

04 January 2021 by jbchevrel

2021 is starting wider in HY CDS indices. Today, both the iTraxx XOver and the CDX HY widened by 8bp. Market participants acknowledge that the path to the vaccine-led recovery is likely to be long and non-linear. In the short term, COVID metrics are looking grim in the Western world, with London and NYC the worst hit areas. Hospitalizations in the US jumped to a record. In Europe, governments are extending lockdowns to try slowing COVID and avoid 100% bed occupancy rates [or revert from it, like in some parts of England]. The prospects of lower mobility for longer than previously expected, contributed to make Transportation CDS as AAL [25%] UAL [4%] and RCL [8%] wider. Crude prices lost 4% on that very theme, and the OPEC+ meeting failed to lift the market. Most OPEC+ members including Saudi were opposed to another output increase in February, on top of the 500kbd added in January. Russia was proposing the maximum supply hike allowed by the group’s agreement, creating an impasse that is reminiscent of the alliance’s breakdown in March last year. As a consequence, some Energy CDS were also among laggards today: MUR and AR 5-year contracts widened by about 30bp. But broadly, single name CDS have outperformed indices and cash [in both XO and HY]. Moreover, there seems to be growing nervousness over Tuesday’s Georgia runoff races, which will determine whether Republicans are able to hold on to control in the Senate. In recent days, betting markets have shown the Republicans’ lead has dissipated. These races now look very tight, and that surely contributed to lift the VIX by +20% [i.e. +4.5v to 27v ]. The DataGrapple team wishes readers a good 2021.