09 April 2014 by HCM
Since the beginning of the year, iTraxx Main is unchanged. One could argue that it actually means risk premia are tighter as we have extended the on-the-run maturity. But in any case, that leaves a clear winner in 2014, the financial sector: despite the slightly longer maturity, its risk premium is 10bps tighter, with most of the move taking place since the last roll in March. Confidence in the sector has been restored with numerous issues of AT1 bonds and the recent release of the results of the central banks’ stress tests. The forthcoming updated financial CDS documentation which will make protection more effective with the introduction of new credit events is certainly not helping either, as investors are not rushing in to buy protection which will become illiquid come September.