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Chapatte's Theorem

08 July 2016 by pdonnat

Former racing cyclist and journalist, Robert Chapatte, used to say, during a cycling race, if a rider escaped alone comes with a minute ahead of his immediate pursuers ten kilometers to the finish line, he shall win the race. We could apply the theorem to the credit market race. If an index has tightened (resp. widened) 10bps faster than the pack of single names one hour before the market close the index basis will close much more negative (resp. more positive). The credit indices have been strong all day long and never gave up their advance on single names. The credit index bases, especially the Crossover basis, are closing very negative across the board.