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The Roll Is upon Us

11 March 2014 by HCM

Over the last few sessions, the Credit Default Swap market has entered a technical period. On the 20th March, the “on-the-run” contracts will not be the ones maturing in March of each year any longer but rather the contracts maturing in June. These “on-the-run” contracts tend to attract the most liquidity and are the instruments of choice of the credit derivatives market. That is the reason why activity is usually more subdued in the sessions preceding the roll, and risk premia tend to erode on the soon to become “off-the-run” CDS leading to a grind tighter ahead of the roll, when the market is otherwise quiet. That phenomenon is obvious for everyone to see on this grapple. The 3 exceptions are AALLN (Anglo American Plc) and GLEINT (Glencore Xstrata Plc) which have been impacted by the recent commodity sell-off, and BOUY (Bouygues SA) which has been involved in the sale of SFR.