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Credit Indices are Leading the Pack

10 August 2017 by pdonnat

The credit index market was very active again today. From 6 B€ and 12 B$ investment grade credit indices reported yesterday in Europe and in the US in the swap data repositories, more than 9 B€ and 16 B$ risks have been transferred today. There is more and more traction on risk reduction given the combination of risks and expensive valuation. However, the credit indices are feeling today most of the pain. The single name credit default swaps have lagged the spread widening. The bases, the difference between the credit indices and the single names are increasing. Looking at the attached Grapple (Basis Time Series Expert Tree in the Grapple Store), the bases in Europe and in the US are close to be at their highest level over the last 3 years. This is also the case for other indices. The bases are stretched and we could see either a sharp snap back on the indices or a whole repricing of credit risks.