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January All Over Again?

23 April 2018 by lberuti

Over the last week or so, the price action was reminiscent of what we experienced in January when everybody was focusing on interest rates. Back then, credit unperformed equities. And here we go again, the US 10-year rate is once again flirting with the 3% level and attracting some headlines. It is certainly one of the reasons why US High Yield ETFs had their worst day in more than 12 months on Thursday in terms of outflows. Almost $900mln were pulled out, followed by another $360mln on Friday. It brought the weekly outflow to almost $1.6Bln. This weakness spilled to the synthetic market, and protection has been better bid recently on high yield single reference entity CDS and credit indices alike. Even though it is still rich to its fair value – the risk premium of CDX HY series 29 is tighter than the risk premia of its constituents -, CDX HY series 29 is 70cts cheaper than it was a week ago.