Our Experts Comment the Times Series

See All the Comments

A Picture of What a Roll Does

20 December 2013 by HCM

As every 20th of December, today was roll day for single name CDS (not for the indices which roll every 6 months in March and September). When dealers quote 5y, they now quote Mar 19 maturity as opposed to Dec 18 up to yesterday. This can be seen by the daily variations which are based on the 5 year “on-the-run” and do not take into account the change in effective maturity. The vast majority of the names are reddish, as one would expect them to be: with generally steep curves, the longer dated the CDS, the wider. But while we should expect a widening of roughly: (3y5y slope + 5y7y slope)/16, single names have far less widened across the board. We have experienced a “bull roll”, where dealers have not factored in the full roll-up along the curve. Hence the theoretical value of Main Europe 5y (whose maturity is still Dec18) has tightened by 2bps today. That is a very healthy move considering its absolute level is now only 69bps!