Blog

Our Experts Comment the Times Series

See All the Comments
rss

Short End Bull Flattening

16 January 2014 by HCM

Every six months, a new series of indices is issued so that they comply with maturity and composition constraints. As all indices are dated, it is possible to use older series of indices to assess the risk premium which the market affects to non-standard maturities. For instance, iTraxx Main S20 10y has a Dec23 maturity; iTraxx S19 10y has a Jun22 maturity;…; iTraxx Main S10 10y has a Dec18 maturity;…
If we put aside the composition discrepancies, it is therefore possible to use old series of iTraxx Main 10 year as a good indication of where the different points of the European investment grade universe are trading, or at least at the way they have moved compared each other over a short period of time. This grapple illustrates a phenomenon typically seen in a spread tightening environment. Because shorter dated spreads are tighter than longer dated ones, they have less room to tighten. Their move in percentage terms can be as large, but in absolute terms their move will be less important, leading to a short end flattening of the spread curves. It gives this grapple its lovely smile!