20 March 2017 by pdonnat
The spring equinox, at 10:28, UK time, was preceded at 08:00 am, by the credit index roll. On-The-Run credit indices in Europe are the Series 27 and, in the US, the Series 28. The 5 years’ standard contract, the most liquid one, is now maturing in June 2022. The extension of maturity from December 2021 to June 2022 has a cost. The new indices are trading wider than the former indices. The iTraxx Europe is trading 7bps wider, the Crossover 22bps, the CDX.NA.IG 6.5bps. These additional premia are lower than what the index members are suggesting. The new CDX.NA.IG should be 10bps more expensive. This is a reflection of the investors positioning. Investors are long risk on US investment grade indices, additional premium is always a bargain. The investors bought back protection on former series to sell protection on the new one. On the attached Grapple, we notice that the new index is trading much tighter than its fair value while former indices are cheaper. The spread hunters have chased today the pick-up in premia.