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Greece, Front And Center

21 April 2015 by lberuti

Over the last few sessions, credit indices have underperformed pretty much everything else: equities, cash and CDS (index bases experienced a shift into positive territory recently). But among indices, iTraxx Main (ITXEB) and iTraxx Financials (ITXES) have been the clear underperformers. The explanation lies squarely with the stalemate in the negotiations between Greece and their European creditors. There are no Greeks names in ITXEB or ITXES, but investors know that European banks would be severely impacted by a Greek default, and they are largely represented in both indices. That is why the risk premium difference between ITXEB and ITXES is back to the wides. That is why the risk premium of iTraxx Crossover has compressed with ITXEB on a beta adjusted basis. That is why ITXEB is now back to trading flat to CVDXIG, its US equivalent, while it was 8bps tighter only a week ago.