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The Month That Was

28 February 2017 by lberuti

The end of the month has felt a bit squeezy and it was obvious from the price action of single names CDS that the coming roll – which is only 3 weeks away and takes place on March 20th – was in many participants’ mind. Most of them were really keen to sell some 5-year protection that soon will not be “on-the-run” anymore. Political risk was also back with a vengeance, and rising uncertainty in several European countries pushed investment grade credit indices wider. iTraxx Financial indices were used as a proxy to hedge against any adverse scenario that would lead to increase odds of Frexit or Nexit. The combination of these factors led to an underperformance of iTraxx Financial Senior which dragged iTraxx Main wider – it closed 3bps wider on the month at 73bps and underperformed both CDXIG in the US which closed 2bps tighter at 62bps and iTraxx Crossover which closed flat on the month at 291bps -, and a return of bases in positive territory across the board in Europe. Index protection is more expensive to buy than single name protection.