Our Experts Comment the Times Series

See All the Comments

Back To Negative Basis For Good?

13 November 2018 by lberuti

It looked like another day in the office when investors arrived this morning. Compared with previous sessions, the same themes were at play. The market as a whole was weak. The oil sector was under pressure because of the uninterrupted slide of crude – it was down another 4% today – and British financial institutions suffered from the usual mumbo-jumbo about Brexit negotiations, where “progress were being made” but “discussions were still ongoing” and a “deal was not there yet”. But towards the end of the afternoon, a number of news outlets reported that a “breakthrough in the Brexit negotiations” had been made triggering a bounce of the British Pound. European credit indices actually followed and tightened across the board as a wave of short covering hit the market. If UK banks felt some kind of relief and were indicated tighter, most other sectors proved stickier and a number of risk premia were left unchanged, opening the way for some arbitrages to be executed, where people were able to buy index protection and sell single reference CDS for a profit. iTraxx Main finished the day 23cts more expensive than its fair value. Its risk premium has not been that tight compared to its constituents since late 2016.