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Liquidity Matters

13 February 2015 by lberuti

It was a relatively strong session across the board, and all credit indices have seen their risk premia decrease during the day. There were a few bumps along the road as investors are still keeping a nervous eye on the news flow regarding Greece. Mr Juncker provided the spark today when he said a deal was still far away, but that was eventually shrugged off and the bulls won the contest. One index moved in a straight line though: iTraxx Financial Sub (ITXEU). It collapsed 9bps today, from 140.5bps to 131.5bps. Of course investors are looking for yield and high spreads are always going to be on their shopping list when the market rallies, but the theoretical value of ITXEU only moved by 5.5bps, leaving the other 3.5bps to a change in basis. It was a typical example of bad market positioning on an index which has experienced patchy liquidity for some time.