The European iTraxx credit indices continued to eclipse trading volumes on single names last week, as investors turned to indices while waiting for single-name volatility to subside further. Traders said volatility on the indices was already dissipating last week and increased liquidity saw spreads tighten eight basis points on the iTraxx Main, coming in from 50bps to close last Wednesday at 44bps.
Credit analysts also reported modest market reaction to the removal of General Motors Corp. and Ford Motor Co. from investment-grade bond indices last Thursday. One analyst said there was no significant action because market adjustments had been made beforehand.
If index spreads continue to pull in, investors will likely return to playing single names, noted traders. Marcus Schüler, managing director of integrated credit marketing at Deutsche Bank, said the tightening of spreads was in line with market expectations and a natural recovery from when there was a lot of fear in the market. "Last week the glass was half empty, but the glass definitely seems to be half full now," he said, adding the market is now "pretty strong."
One trader said the indices had fulfilled their role as a single-name proxy for investors during market uncertainty. He predicted a slow unwinding of index trades over the next month. Another trader also cited exhaustion after a month of market volatility coupled with short bank holiday weeks in the U.S. and U.K., as an excuse for investor reluctance to take immediate action on single names.