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A new Vintage for the Credit Indices

06 October 2014 by pdonnat

The market started to trade Series 22 in Europe and Series 23 in the US. The trading pattern was atypical especially for the iTraxx Crossover index. The new iTraxx Crossover index contains 75 names with 20 new entrants having spreads trading above 500bps, single B corporate for most of them. The new index is a better proxy for hedging high yield portfolios but also a nice product yielding a 3.40% running spread with a diversified set of risks. Due to this new composition, investors started to sell protection all day long. This is the first time in many rolls that the Crossover roll is trading inside its fair value at its first close, while the off-the-run indices are trading much wider like the Series 21. There is some price discovery to be realized on the new entrants that have little traded in CDS so far before to have a definitive conclusion on the atypical start of this new vintage. But, for today, on the graph, we can observe that all the Crossover basis are closing up while the on-the-run basis is closing at -34cts, the index trading tighter than its fair value.