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No News… Just No Buyers

13 June 2017 by lberuti

When technology shares sold off at the very end of last week, credit indices hardly reacted. And for a reason: they do not include any of the Apple, Alphabet, Facebook or Google of this world. Credit investors focused instead on reassuring macro news regarding the cohesion of the European Union and sent indices tighter across the board. In the absence of specific news today, the rebound in tech stocks could hardly be used as an excuse to justify the additional index tightening. There were simply no marginal buyers of index protection. Every time people came to get rid of hedges that do not seem to bring value any more – what is the point of paying carry in a market which has moved in a straight line over the last 7 weeks from 77bps to 57bps for iTraxx Main and from 69bps to 59bps on CDX IG -, no one was willing to step up and catch a falling knife. Except for a handful of names – almost all belonging to the energy and retail sectors -, people are not buying protection on single references either, so arbitragers are unlikely to bring any support to index protection. That rally might have more legs.