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It’s The Liquidity, Stupid

19 February 2018 by lberuti

In the absence of the US, no one really expected massive volumes to go through. And that is exactly what happened with less than €5Bln notional of iTraxx Main trades reported to the SDR. That is less than half the daily volumes of last week. There were a couple a single name stories with Daimler (5-year CDS +3.5bps @ 45bps) still embroiled in the emission defeating device scandal in the US and UPC (5-year CDS +16bps @ 146bps) rumoured to eye Swiss mobile providers Salt or Sunrise. But away from that, single reference CDS were quiet and closed broadly unchanged or perhaps even tighter, as market participants prefer to cut shorts after a few weeks of volatility. This was in contrast with the weakness in stocks and credit indices. It felt like we had a big short squeeze on Thursday and Friday into the US bank holiday, and that we are now reversing part of the these moves. That led to a general widening of bases (difference between the quoted value of an index and its theoretical level computed with the value of its individual constituents) in Europe as all credit indices unperformed their fair values.