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06 May 2015 by lberuti

Over the last month, risk premia trended gently wider in the US (CDXIG went from 60bps to 64.75bps and CDXHY went from 329bps to 346bps), while the ride was a bit wilder in Europe (iTraxx Main – ITXEB - went from 56bps to 63bps and iTraxx Crossover went from 254bps to 286bps) as Greece created some additional noise. The underperformance of the European credit indices can be almost entirely explained by a move in the bases. In Europe, they are now all back in positive territory, which means that the risk premia of the various European indices are wider than their theoretical values computed using the risk premia of their constituents. Based on history, it is the most common configuration, especially for ITXEX. The recent episode of volatility has brought the whole basis complex where it belongs.