27 October 2014 by lberuti
The new series of indices were launched on the 6th October. For most of the month, the basis of the new series of iTraxx Crossover was more negative than any other series. iTraxx Crossover S23 was the cheapest available index of the family compared to its fair value if you wanted to buy protection. It was a fairly unusual situation as the iTraxx Crossover on-the-run series is normally the instrument of choice to hedge high yield portfolios. Investors favour the most liquid index when they want to get through periods of uncertainty. The recent patch of volatility has been enough to correct that abnormality though. The series 23 has gradually regained its natural position and is now the most expensive (but the most liquid, and that comes at a price) hedging tool. At the same time, the basis has gone out of negative territory and now buying protection via the index is more expensive than buying protection on each of its constituents. The recent increase in nervousness among investors allowed the standard market pattern to be restored.