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Decompression: The Theme Into Year End ?

14 November 2014 by lberuti

Yesterday, questions begun to be asked regarding ABGSM’s ( Abengoa SA ) approach of leverage and the name was under serious pressure. But that was nothing compared to today, as investors continued to put the company’s reporting under the microscope and doubled its risk premium from already elevated levels. The suspicion spread to other names in the iTraxx Crossover, and people obviously revisited a few long risk positions that were taken a bit lightly, essentially on the back of attractive risk premia but without a thorough credit examination. Most of the newcomers in the series 22, which are genuine high yield names and offer the best remuneration, were indicated wider. That pushed the fair value of iTraxx Crossover 10bps. The index itself “only” widened 6bps, but it could keep its march higher next week. At the same time, iTraxx Main was unchanged on the day. It still benefits from its safe haven status and from the good vibes coming from the US, where CDX IG seems unmovable. Together with dispersion, decompression could be a major theme into the end of the year.