23 October 2015 by lberuti
Usually when indices have a large move in the afternoon (like it happened yesterday), single name CDS are left a bit behind. They are a slower to adjust as they do not necessarily all trade at once, and the new situation is only fully reflected in their prices once trading has taken place in all the sectors. That is why bases (the difference of the quoted price of an index and its theoretical price computed from the prices of its constituents) closed at extreme negative levels yesterday. They usually adjust during the following session. But today, as part of their plate spinning challenge with the ECB, the PBOC stepped up their monetary easing and announced their 6th interest rate cut in a year. That led to a fresh round of protection selling on credit indices, and the single names, which were still playing catch up with yesterday’s price action on iTraxx in Europe and CDX in the US, were left with more ground to cover. In the end, at the close, index bases were as negative as they were yesterday!