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There Has Never Been A Better Time

26 January 2016 by lberuti

Despite a poor start early in the session, oil managed to stage a rebound today, closing up almost $2 per barrel at $32.5. That certainly benefitted credit indices both in Europe and in the US and they are closing at their tightest levels of the day. It also helped the energy names included in CDXHY25 which have been battered recently. But after a poor session yesterday, mortgage insurers were weak once again. In the American High Yield space, there is hardly a day without a sector being asked serious questions and protection on single reference entities is left bid across the board. That has pushed the theoretical value of CDXHY25 close to 600bps, while the index itself is struggling to trade through the 550bps level and closed tonight at 525bps. This means that the basis of CDXHY25 is now worth almost 3%, a level which is very close to the most stressed reached during the Great Financial Crisis. More and more investors are looking at investing in basis trades and there has (almost) never been a better time to do it.