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Let s Decompress

27 November 2018 by lberuti

The European High Yield market was a war zone today, with 3 of iTraxx Crossover (ITXEX) constituents among the casualties. Bonds of PIZEXP (Pizza Express), TCGLN (Thomas Cook Group Plc), and WINDTRE (Wind Tre Spa) got hammered and closed 8pts, 4pts and 3pts lower. These names make up enough of High Yield indices to affect most investors and they unsurprisingly dominated the flows. This single B compartment is proving increasingly painful for long only investors. According to many market participants, the three names mentioned had already an element of bad news priced in and had sold off more than the market in recent sessions in anticipation of bad numbers. However, on the actual events – they all reported weak earnings this morning -, they sold off even further. It pushed the recent decompression even further. While iTraxx Main (ITXEB) closed 1bp wider at 80bps today, ITXEX closed 9bps wider at 339bps. Over the last week ITXEX is 12bps wider while ITXEB is 0.5bps tighter, and over the last month ITXEX is 36bps basis wider while ITXEB is 3bps wider. All these relative moves compare with the widely accepted 1 to 4 ratio.