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The Tight Range

21 January 2014 by HCM

Since the beginning of the year, the risk premia of some single name issuers have been volatile. For instance today, the 5y CDS of ALOFP (Alstom SA) was wider by 14bps to 160bps following a profit warning and a lack of visibility on guidance. But from a more macro perspective, the market have been very well behaved. The trading range of all indices has been extremely narrow (15bps for iTraxx Xover and 3.5bps for iTraxx Main over the last month). Some investors have begun to play the range and implied volatility are trading at historically low levels. Combined with the tight level of spreads, buying downside protection through options is looking more and more appealing.