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Relief Rally

22 January 2016 by lberuti

Today’s session only confirmed the tone that was set yesterday afternoon. Flows in CDS were heavily skewed towards better selling of protection, as investors cut hedges and added risk to their portfolio. This abated towards the end of the session though, particularly on indices which closed off their tightest levels of the day (iTraxx Main at 93bps, iTraxx Crossover at 369bps and CDXIG at 106bps). That meant that for once single reference CDS moved faster than credit indices correcting a (tiny) bit the level of the bases (which are still the equivalent of 10% of indices risk premia across the board, so still hardly in reasonable territory). Sectors that have been beaten up most since the beginning of the year rallied hard, most notably the oil and the auto sectors.