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Credit Indices: The Odd Ones Out

15 September 2014 by lberuti

Despite a fairly poor price action overnight in Asia and on Friday in the US, European risky assets were resilient across the board during the morning session. Ahead of a week packed with events that have the potential to impact markets, investors appear to stay on the side-lines. While this trend held on most markets once the US came in, credit indices begun their drift wider. iTraxx Main traded from 59.5 to 61bps and iTraxx Crossover traded from 244 to 251bps in a straight line. They closed 2.5bps and 9bps wider respectively. Single name CDSs are still impacted by the coming roll which will take place next Monday, and people are reluctant to buy contracts that will no longer be “on the run” in a week. The fair value of iTraxx Main closed only 1bp wider (dragged by the financial sector which actually accounted for almost 0.6bps). All this led to a widening of the European indices compared to their fair values. The bases have widened steadily recently and they are approaching their recent wides. Something will have to give soon. If the FED manages investors’ expectations carefully, we will get a snap back on indices. If the Scots decide to go their own independent way, single names will go through a few torrid sessions.