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The Scissors Effect

04 March 2015 by lberuti

The tone continued to soften in the High Yield space in Europe today. This compartment is clearly in consolidation mode, and HY bonds closed 1/2pt lower to unchanged across the board. Unsurprisingly, the names which have outperformed recently were among the underperformers today, and that eventually fed through the CDS market. For instance, STENA was 13bps wider at 475bps (remember DataGrapple computes the risk premia using a 100bps coupon), INEGRPSA (Ineos Group Holdings SA) 19bps wider at 398bps, and WINDIM (Wind Acquisition) 10bps wider at 290bps to name a few. On the back on this consolidation move, the theoretical value of iTraxx Crossover was 3bps wider at 277bps. At the same time, a late surge in equity markets during the last 2 hours of trading brought sellers of index protection, which had traded sideways for most of the session, to the market and iTraxx Crossover closed 4bps tighter at 261.5bps. Because of this scissors effect, the basis of iTraxx Corssover closed towards its most negative level of the year.