11 November 2014 by lberuti
CDX IG in the US and iTraxx Main in Europe are usually going hands in hands. Thanks to the normalisation in Europe of the financials on the back of Mr Draghi’s now famous “whatever it takes”, the spread between the 2 has not been more than 10bps over the last year. Still, CDX IG was trading inside iTraxx Main, and it is only since September that this relationship broke. With the comfort investors got from the AQR results in Europe, and the recent underperformance of energy and consumers names which was more acute in the US, the fair value of CDX IG (as derived from the prices of its individual constituents) now stands 5bps on top of the fair value of iTraxx Main. The indices are still very close, but one could expect the same to happen with them. iTraxx Main could fairly soon trade tighter than CDX IG, which is the situation which used to prevail until 2010 when hell broke loose in European sovereigns (you can see that if you increase the time span to Max in the top left corner of the grapple).