14 December 2015 by lberuti
Despite obeying slightly different rules regarding their composition, CDXIG525 in the US and iTraxx Main (ITXEB524) in Europe include roughly the same number of constituents coming from the energy sector: 19 for CDXIG25 and 20 for ITXEB24. There is a difference though. While most of these names are low beta in Europe (REPSM, the widest energy name, trades at 255bps and all the other sub 100bps), all the energy names in the US are high beta credits. Whatever timespan you select on the above Grapple, from 1 day to 6 months, you will see massive variations which reflects investors’ worries following the recent oil’s price rout. There is currently not a single US name belonging to the energy sector in CDXIG25 which has a 5 year risk premium lower than 100bps. Look at today’s wild ride, nobody expects it to change anytime soon, and that goes a long way in explaining why the credit index basis, which has corrected in Europe for ITXEB24 5 year (it closed at -15cts while it was worth -40cts a couple of weeks ago), is still stuck at historically stressed levels (roughly -70cts) in the US for CDXIG25 5 year.