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CDX / iTraxx Main Divergence

13 January 2015 by lberuti

Recently the financial sector in Europe has underperformed as investors were trying to gauge the impact of the Greek elections and of the deteriorating Russian situation (the Rubble is quickly closing on its weakest level against the USD) with regards to banks. But an even more powerful trend has been the weakening of credits in the energy sector in the US. That situation is best illustrated by the recent move among the dealer community to quote RIG’s ( Transocean Ltd ) risk premium in points upfront instead of a running spread, a situation that typically affects a company when it switches from investment grade to high yield. It has led to a meaningful underperformance of the CDX IG (which now trades at 70.5bps) compared with iTraxx Main (which now trades at 61.25bps) during the last few sessions, but also since the last index roll when the most recent series were both launched at 66bps. This situation could be here to stay as the spread between the theoretical values of these two indices is even wider and stands at 14bps (77.35bps vs 63.37bps).