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That's Compression

19 February 2016 by lberuti

When investors compare the moves of iTraxx Main (ITXEB) against the moves of iTraxx Crossover (ITXEX), they usually use a ratio of 4 for the current series of indices. If you play with the time span of the above grapple, you will see that this ratio roughly holds for any period since the beginning of the year. Not today. Investment grade names were indeed dragged by headlines regarding the Auto sector and Financials. Mercedes-Benz clean diesel models are accused in a lawsuit of containing a device that causes the vehicles to violate US emissions standards. Their owner DAIGR ( Daimler AG ) denied any wrongdoing and said claims of defeat device are baseless, but with memories of VW’s ( Volkswagen AG ) rollercoaster ride still fresh in investors’ memories, the whole sector’s risk premium was pushed wider. Jitters around banks came mid-morning after CS (Credit Suisse Group AG) was said to be probed in Italy for money laundering. Once again, as we said many time before in the recent past, moves never really felt panicky, but they were definitely enough to cause a meaningful compression between ITXEB and ITXEX, as both widened today by 3bps, to 113.5bps and 443bps respectively.