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Do You Buy Compression At These Levels?

05 March 2015 by lberuti

Today, however you look at it, European credit experienced a bullish session. The tightening started from the word “go” and the market never looked back. iTraxx Main went in a straight line from 50 to 47.75bps and iTraxx Crossover went from 261.5 to 248.5bps following the same pattern. Compression between high and low beta was in full swing as iTraxx Crossover meaningfully outperformed its usual relationship to iTraxx Main. Investors also pushed curves flatter, giving long dated risk premia an extra nudge. So compression was at work on that front as well, eventually vindicated analysts who recommended earlier in the year to buy risk on longer dated maturities.