20 June 2018 by lberuti
Today was option expiry day. June is traditionally a busy one as this maturity – with March, September and December – is one that is actively quoted throughout the preceding 7 or 8 months. If this one felt really quiet, it was enough to pin the market on the 4 most liquid benchmarks. iTraxx Main (ITXEB), iTraxx Crossover, CDX IG and CDX HY spent the session wrapped around 67.5bps, 300bps, 62.5bps and 106.75 (or 339bps) respectively, which are all option strikes. That said, there was not too much delta overflow post 4pm - which is the actual deadline to exercise a credit index option on expiry day – which means options’ rehedging might not have been the only factor. Between the risk caused by a trade war and an hawkish Fed on one hand, and a very dovish Draghi and a decent confidence in credit evidenced by the 22Bln order book for the 5Bln deal announced by Bayer on the other hand, the market may just be finely poised. That subdued activity – you can see the volumes traded if you visit OTC Streaming - was the opportunity for those who have been in the CDS market for a few years to spare a thought for iTraxx Main Series 9, which saw its last remaining maturity mature today. Arbitragers now fighting to capture a few cents will remember fondly the 3.8% discount at which this index was trading compared to its fair value at the height of the Great Financial Crisis.