10 July 2014 by HCM
Once again, today was all about BESPL (Banco Espirito Santo SA). The stocks of most parts of the group were suspended today, at least for the afternoon pending announcement regarding the restructuring of the debt of ESI, and potentially of other entities in the group. But CDS kept trading on BESPL, and it experienced another rollercoaster, finishing off the wides but still a good 30bps wider on senior debt. On this grapple, while we see that all series of iTraxx Financials Sub are trading wider than they were early July, it is all also quite obvious that series 14 and previous took a much bigger hit. They did so for a good reason: they include BESPL. What we can also see is that the older the series is, the larger the underperformance. It stems from the fact that in case of very adverse shock, the risk premium widens, but it also inverts on short dated maturities when expressed as a running spread.