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A Day of Pure Beta…

23 January 2014 by HCM

Today marked the first session of the year where questions have been asked regarding the recent asset prices trajectory. Credit was not spared and credit indices experienced their worst performance so far in 2014 by a fair margin. When this kind of move takes place, indices are usually leading the way, and they react faster than single names, the latter playing catch up during the following sessions (or indices going all the way back!). Today was different. There was hardly any outliers. The credit spread of almost every single name was indicated wider, and the fair value of indices have tracked almost suspiciously the quoted indices. At the end the day, a 15ct move in iTraxx Main only triggered a move of 1ct in the basis with its fair value. After the heavy new issue pipeline we have seen so far this year and a few disappointing sets of results, some names were due for a correction and market participants were probably happy to mark them wider without necessarily much trading going through. We now have new found levels that should give a platform for trading to happen. Expect more action on the basis during the next significant move (whichever way the market takes us).