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It’s All In Their Head

07 January 2019 by lberuti

Welcome to 2019! Let’s first use the opportunity of this blog to wish all our (regular and accidental) readers a very Happy New Year. As far as credit markets are concerned, 2019 begun very much like 2018 ended, with every index trading at very expensive levels compared to their fair values. The apparent bid for single name protection is mainly coming from the anticipation of a heavy issuance pipeline. Indeed, when new deals reach the market, they do so at hefty discounts compared to existing bonds. Today, INTNEDGRP ( ING Groep NV ) issued a €1Bln 7-year bond which was roughly 25bps cheaper than existing notes. It repriced the whole complex and sent INTNEDGRP’s 5-year risk premium 9bps wider at 115bps and the bid for CDS was deep. But when there is no substance behind that new issue fear, it is effectively proving very difficult to sell protection on most of the names and the very negative bases that seem to exist between credit indices and their constituents are a pure fiction. Over the last few sessions, arbitrageurs have repeatedly tried to capture the 38cts up for grab on iTraxx Main but miserably failed each time by a fair margin.