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Life Outside CrossOver

21 November 2017 by lberuti

It was another firm session as the Thanksgiving rally continues. The wides of 55bps on iTraxx Main and 258bps on iTraxx Crossover seem now a distant memory. But if protection felt well offered on credit indices, there are still individual names on which the investors community is still skewed towards buying protection. If these names are index members, and more specifically members of iTraxx Crossover (ITXEX), then arbitrageurs who use the strength of the index to sell single name CDS are a source of protection. They have helped cap the widening, and names like Altice, SFR, Matalan, CareUK, Loxam are all trading off their recent widest levels. The situation is slightly different for names that for any reason have been dropped from indices. It is the case for RALFP ( Rallye SA ) which exited ITXEX since COFP ( Casino Guichard Perrachon SA ) entered it. RALFP is on a widening trend, and there is nothing to stop it at the moment. Its risk premium has been catching up with the move in Casino’s stock price which currently sits below €48. RALFP’s 5-year CDS lives its own life outside ITXEX and could experience more pain going forward as year-end amplifies liquidity issues.