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Derivatives

iTraxx Volumes Steal Lead From Single-Name CDS

The number of contracts traded on the European iTraxx credit indices overtook single name flows last week as market players turned away from taking long or short views on single names.

The number of contracts traded on the European iTraxx credit indices overtook single name flows last week as market players turned away from taking long or short views on single names. Traders said investors were reacting to tight spreads and the quiet summer market by taking generic positions on the indices. "This week there has been a lack of conviction," said one trader at a U.K. house, noting liquidity was poor in single names.

Most activity was reported on the iTraxx Main where five-year trades were most popular. The price of protection tightened to 36 basis points on Thursday, from 37.5 bps on Monday. It had widened from 36 bps the previous week in reaction to world oil prices hitting a record high.

One trader expressed surprise spreads had not widened further on the news and two-way trading remained high. "We expected a downturn, but people are still looking to take risk," he said. Another trader agreed liquidity was unexpectedly high, attributing it to investors' ability to take a quick view through the indices.

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A market official at a European firm said the trading calm on single names was unusual, even over the summer months. "It's been a strange year because people don't want to commit," he said, adding, "with the changing political environment and tight spreads, going long doesn't make sense and going short doesn't either."

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