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Has The Great Unwind Begun?

23 January 2017 by lberuti

When people arrived in the office this morning, they took a good long look at what was in their books, and discussed it with their neighbours. It was soon pretty obvious that everybody is wearing the same risks. People are long stocks. They are long US dollar. They are long petrol. They are short treasuries. They are short volatility. They are long credit. And in a very orderly fashion, it seems that they began to trim some of these risks. In creditland, dealers were all too happy to run into buyers of protection and to be given, at last, an opportunity to offload some of the single reference CDS that have cost them so much carry over the last couple of months (roll down will also soon start to be an issue with the roll only a few weeks away) . That is the reason why credit index fair values were hardly changed across the board (the theoretical value of iTraxx Crossover was the odd out after some basis arbitrage activity). Credit indices were a tad quicker to react, and most bases are now back (or close to be) in positive territory.