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Getting Ready For The Roll

19 December 2014 by lberuti

Today was a rather uneventful session during which most credits were well behaved. This was probably what market participants were looking for anyway, given the incredible volatility of the previous few sessions. Unsurprisingly with the CDS roll taking place next Monday (the standard 5 year maturity contracts will then be pushed by a quarter to March 2020), risk premia were a tad tighter across the board. Current contracts will lose their “on the run” status which traditionally impairs slightly their liquidity. Most people also expect the level of the 5 year CDS not to be materially different between today and Monday, even though their maturity will have been effectively extended by 3 months: they expect that the roll up the curve that should theoretically occur will not be fully reflected in the price. There were still a few spots of weakness though, but they were contained to area where problems have been well flagged: Ukraine and Venezuela among sovereigns, some energy companies, and names which could be among the next to default (Caesars which was said to have a meeting with its first lien bondholders with a view to organise a Chapter 11 sooner rather than later after their missed coupon payment on the 15th Dec; and RSH despite the recently advertised best effort of protection sellers to keep the company afloat).