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Where to, Mister Draghi?

19 January 2017 by pdonnat

Not to the stars, for sure. The uneventful ECB meeting delivered an uneventful trading session in credit index space with no more than 2B€ iTraxx Europe trading today. The credit index implied volatility is offered at 40% on the February expiry, less than 2 basis points per day to be break even. This is looking expensive for a market closing in a 2 basis points interval since the beginning of the year. This is cheap if you look at the past time series and how the credit index market is prone to gap. No index is exempt of this lack of volatility. Today, the only salient market compartment was the European Crossover which saw a descent squeeze in protection with good news on companies across the board, Borapan is being approached on its Fox’s Biscuits unit, Hema delivering decent results, Quick keeping rallying post yesterday numbers. The index members are outperforming the index level by 6bps. The iTraxx Crossover is one of the few indices cheap to its fair value. All other liquid indices are expensive, trading tighter than their fair values.