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Credit Won't Go Tighter

19 November 2014 by lberuti

Over the last few sessions, credit has underperformed equities, and iTraxx Crossover has underperformed iTraxx Main. It should not necessarily come as a surprise. First the new issue calendar has been hectic recently and near record amount of bonds have been brought to the market. That usually leads to hedging activity which is naturally conducted using credit indices. Secondly, the market has experienced a number of idiosyncratic events since the beginning of the month that gave investors food for thoughts. Today alone, Towergate’s bonds lost 15pts after negative results and Obrascom’s lost 5pts after the company’s downgrade by Moody’s to B1 with a negative outlook. Before that we had Manutencoop and Boparan on Monday which suffered respectively from negative results and bird flu scare, while last week Abengoa was all over the place. In that context, reducing exposure can make sense and investors were net buyers of iTraxx Crossover S22 (which include the most high yield names of all series) protection last week, as shown by the DTCC numbers published earlier today.