Our Experts Comment the Times Series

See All the Comments

VIX Is Not The Only Fear Gauge

25 September 2014 by lberuti

What begun as lacklustre session ended in pretty hectic trading, at least on credit indices. As some investors are away for Rosh Hashanah, most expected a quiet day and it certainly started that way. But when the US came in, some large lifts of protection took place as the high yield cash continues to trade very poorly. From 1pm, risk premia started to widen and never looked back. ITraxx Crossover (ITXEX521), which already underperformed other European credit indices yesterday, bore the brunt of the pain and widened much more than its usual beta would have predicted. When things are going wild, trading is concentrated on the most liquid instruments. Unsurprisingly, single names were more chilled and did not experience that bad a day. That will change tomorrow if the mood stays gloomy though. But in the meantime, iTraxx Crossover traded further away from its value and its basis (BTXEX21) spike to 65cts. A value above 75cts is typical of a market under serious stress. We are not there yet, but the credit fear gauge is heating up.