18 March 2020 by pdonnat
After European close, the credit index complex kept widening with CDX investment grade index trading close to 150bps, 10bps wider the its closing price at 5pm. The market lost all its faith in any support to go through the path of confinement. The attached Grapple set the perspective of the recent events on the credit market and how close the credit is to its GFC levels. Most indices are trading cheap to their fair value, wider than their constituents. There is one exception, the CDX investment grade index which is trading more than 20bps tighter. This index includes US oil companies which are facing to default with current oil prices. Given that CDX investment grade is setting the tone on the credit index market, the path of stabilization will arise from an oil price rebound. Central banks should stockpile cheap oil to save the credit market.