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Well Behaved

17 February 2016 by lberuti

Today was the 4th session in a row of credit indices tightening. Europe has led the charge, driven by financials which are now well of their widest levels. iTraxx Financials Senior (ITXES), which was trading at 140bps as recently as last Thursday, closed tonight at 113bps. With iTraxx Main (ITXEB) and CDXIG closing tonight at 108bps and 117bps respectively, it is as if the few sessions where they traded on top of each other never happened. ITXEB is coming back to 100bps as fast as it went out to 127bps. Less than 2 weeks were necessary to cover these 50bps. But the most striking is how well behaved the market has been during this burst of volatility. Credit indices and single reference CDS have move in unison. Today for instance, the basis of ITXEB (the difference of the quoted value of the index and the theoretical value computed with the risk premia of its constituents) moved by less than 2cts during an index move of almost 30cts. The basis of ITXES moved by less than 4cts for an index move in excess of 35cts.