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iTraxx Financial Basis Into The Roll

02 September 2014 by HCM

Since the series 21 was launched in March, investors have been aware that new CDS definitions would come in September and that they would mainly impact CDS referencing financial entities. It has not prevented investors from trading financial CDS because hedging and investing needs have not gone away, but it has certainly slowed single names’ trading activity. In any case it seems that some of this trading has been diverted to indices, which will remain liquid for a while, even when series 21 will not be “on the run” any longer. That might be a reason behind the stubbornly positive basis of iTraxx Financial Senior compared with its fair value. In spread terms, the index has been consistently trading wider than its fair value since the beginning of July. While single names’ traders are concerned with the roll down and only reluctantly bid up protection whose liquidity will be dramatically impaired after the 22nd of September, iTraxx Financial Senior has 2 sources of buyers: hedgers when the market is weak and investors who have been playing the compression against iTraxx Main when the market is strong.