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Crossover Roll: The Unexpected Winners

21 March 2014 by HCM

When the composition of the Crossover is modified, the common belief is that new entrants will suffer as they are now part of the hedging tool most widely used by portfolio managers, and that names existing the index will benefit. This Grapple paints a slightly different picture, and shows that this time around, if the exiting names are among the best performers since the beginning of the week, the new entrants are also part of this elite group. Dealers might have been a bit harsh on them on Monday anticipating high demand for protection, and these high risk premia triggered some clients’ selling of CDS. The hunt for yield is still on, and some of the names joining the index have decent credit metrics which makes them interesting portfolio diversifying options.