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Positioning Matters

05 August 2015 by lberuti

The increase in dispersion among credits goes some way in explaining the current environment of negative index bases (i.e. the traded risk premia of indices is tighter than the theoretical values one gets using the risk premia of their constituents). There were some names which blew out (like ABGSM - Abengoa -, ISOLUX or NSINO - Norske Skogindustrier -), there were some names affected by the commodity’s fall which led investors to bid up protections on these. But that is only one side of the equation. The other of course is what happened on indices themselves. To that extend, the DTCC statistics released this morning regarding clients’ positioning as of the end of last week is quite telling. Compared with the week before, they added risk across the board and sold protection on CDXIG ($3.7bln more), HY ($700mln more), iTraxx Main S23 ($1.3bln more) and iTraxx Crossover S23 ($600mln more). On both side of the Atlantic, whatever is said about commodities, China or Latin America, clients have hardly ever been that long risk on indices.