The trading frenzy normally whipped up around the bi-annual roll of the iTraxx indices failed to materialize last Monday when the new series 5 suite was introduced. Surprised traders said the volume of swaps on the new suite of indices was significantly lower than previous rolls, with one trader estimating a cut by one third from September. "The roll did not start any immense trading on the back of it," said one London-based trader.
"We had the view the roll would create negative dynamics and people would rush to buy protection on it," said another trader, noting instead investors were comfortable enough to hold off and wait to see how the market reacted. "It's a change in the behavior of market participants," he added. Other officials attributed the calm to increased liquidity in off-the-run indices, including Series 3 and 4, in the lead up to the roll.
In addition, it was also the first time price of protection for the on-the-run series tightened rather than widened on debut, with people who were short covering their positions. Spreads on the Series 5 Crossover opened at 300 basis points and had mushroomed to around 280bps by Tuesday morning. "This is a significant tightening within a day," said Marcus Schuler, managing director in integrated credit marketing at Deutsche Bank in London.
