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The Roll

22 December 2014 by lberuti

Like every business day that follows the 19th of December, today was roll day for single name CDS (not for indices which roll every 6 months in March and September). When dealers quote 5y CDS, they now quote CDS maturing in March 2020 as opposed to December 2019 up to last Friday. This can be seen on the daily variations which are based on the 5 year "on the run" and do not take into account the change in effective maturity. The majority of names are reddish, as one would expect them to be: with steep curves (in the investment grade universe anyway), the longer dated the CDS, the wider. But while we should expect a widening of roughly (3 year 5 year slope + 7 year 5 year slope)/16, the widening was far less across the board. We have experienced a "bull roll", where dealers have not reflected the full roll-up along the curve. Hence the theoretical risk premium of iTraxx Main has tightened by 2bps today, despite the widespread feeling that hardly anything happened