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Compression Is Relentless

10 March 2014 by HCM

Since the beginning of the year, the compression trend between iTraxx Main (ITXEB), which represents the risk premium of the investment grade universe in Europe, and iTraxx CrossOver (ITXEX), which is the closest to a high yield risk premium indicator we have in Europe, has been relentless. You can actually click on all the different time span between 6 months and 1 day and the picture will be the same. CrossOver has consistently outperformed Main. Many factors contributed to that trend: investors’ desperate search for yield has been a consistent feature throughout 2014, rumours of big cross assets positions being unwound (short CrossOver risk / long equity risk), M&A operations targeting CrossOver constituents all resulting in orphaning fears or a migration towards investment grade.