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Unusually Unusual

28 June 2016 by lberuti

Over the last three sessions, the credit market has experienced some pretty extraordinary moves. The day Brexit was announced, iTraxx Crossover (ITXEX) opened at 435bps, 100bps wider than the its previous close, which was a 30% increase of its risk premium. iTraxx Main (ITXEB) opened 30bps wider, which represented a 40% widening. In such unusual circumstances, one would have expected bases – the difference between indices and the theoretical values computed with the risk premia of their constituents – to be all over the place, and effectively to be more positive by a fair amount - indices are the most liquid instruments and the most recognised hedge and hence are expected to react faster than single reference entity CDS -. But none of that happened. The bases stayed in check and remained contained for every single index, in Europe and in the US alike. At most we have seen a continuation of the normalising trend which bases have followed since the beginning of the year. These are unusual unusual times.