09 February 2018 by lberuti
Many people are moaning about the lack of volatility, while some were feeding on it. It all came to an abrupt end this week. But while stocks experienced wild swings over the last 6 trading sessions, credit has been slower to react. At the beginning of the move, credit investors stayed on the side-lines. But as things got worse on equities, they begun to reach for the most liquid instruments and credit indices were pushed wider. Even much wider in some cases, as this week stands among the 10 worst since the Great Financial Crisis if you consider the percentage by which risk premia increased. iTraxx Main and Crossover widened by 11bps and 30bps at 56.5bps and 279bps respectively. CDX IG and CDX HY widened by 15bps and 56bps at 64.5bps and 371bps respectively. Investors did not start to sell aggressively part of their corporate bonds holdings though, and they did not even start to buy single reference Credit Default Swaps either. That led to a substantial increase in the basis of credit indices - the difference between the quoted value of an index and its theoretical value computed using the risk premia of its constituents -, and they now all stand in positive territory which is a rather usual situation. One name was not spared though. DB ( Deutsche Bank AG ), which is a poster child for leveraged institutions and is seen as much at risk in the current environment, was marked 32bps wider on the week at 103bps.