26 March 2018 by lberuti
The US had a rough end to their trading session on Friday and risky assets took a beating after European went home for the week-end. Everyone was thus expecting a difficult open this morning when they arrived in the office. It did not really pan out that way though, and the European credit indices opened unchanged compared with their close on Friday and were soon even a tad tighter. If they eventually widened in the afternoon, they did so in a very orderly fashion, and iTraxx Crossover (ITXEX) more reluctantly than other indices. It seems that there is some sort of protection buyers’ strike on ITXEX at the moment. Maybe people do not want to pay close to 300bps to own protection on it, as it is a level that we have not seen for quite a while on that index. The bottom line is that the compression trend between ITXEX and iTraxx Main which begun a few ago is still at play. The risk premium of investment grade indices is currently rising at a faster pace than the risk premium of high yield credit indices.