Credit investors are rushing to unwind long bond, short iTraxx Crossover positions because the play has flipped from a positive carry to negative. Traders say the combination of widening cash spreads and tightening synthetic spreads has reduced returns on the strategy and prompted the sell off. One London-based strategist noted the sell off has contributed to the sharp rally in iTraxx Crossover spreads, which have tightened around 40 basis points since Easter, to 224 bps on Monday.
Traders across the Street said the continual grinding of the iTraxx indices, combined with low liquidity following the May Day holiday in Europe, has the market treading carefully. ITraxx Europe has tightened 5 bps from mid-April to 27 bps, and Hi Vol has come in to 47 bps from 56 bps over the same period.
