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The Roll Exposed

20 March 2014 by HCM

Today was roll day in the CDS space. That means that the so called 5 year point which is the most liquid part of the curve has moved out by a quarter from Mar19 to Jun19. The data displayed on DataGrapple follow the same rule, and the 5y risk premium is always the “on the run” risk premium. Considering that the fair value of the iTraxx Main S20 has not changed, one can say that single names have not moved much globally. Hence today’s daily changes give a fairly accurate estimate of the difference between the Mar19 and Jun19 CDS. This Grapple gives you an idea of the extra risk premium you are asked to pay (or that you can expect to receive) to extend the maturity of a position by 3 months. If you look at the Bubble view, you will see that this extra spread is a linear function of the 5 year risk premium and is worth 5% of it, except for the weakest names where hedges have to be put in place.