03 October 2014 by pdonnat
Next Monday, the new credit index series will start to trade, series 22 in Europe and series 23 in the US, both having a December 2019 for the 5 year standard contract. The “credit index roll” combined with a positive session for all risky assets has put a strong selling pressure on the credit indices protections. The iTraxx Crossover which is the most favourite credit index to hedge the European high yield credit was on sale. It has tighten by 20bps from 265bps to 245bps, twice as fast as the CDS underlying entities. We have a very special situation where the Crossover index is trading inside its fair value while still being on-the-run. This technical should remain the next sessions while investors keep rolling their hedges into the new series. Index velocity has been at play for all credit indices from Europe to US, with the iTraxx Crossover credit index and the CDX HY credit index being the best runners.