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<h3>ITRAXX MORE VOLATILE THAN BOND CASH INDEXES</h3>
<p>Credit spreads are in focus at the moment both as everyone looks at market stress indications to see the impact of the war in the Middle East, not to mention the private credit worries bubbling along in the background.</p>
<p>Some like to look at the cash market and the spread between indexes and benchmarks, and others use iTraxx’s credit default swap indexes.</p>
<p>Societe Generale credit analysts point out that while the two move together – as they should – iTraxx has been more volatile in recent weeks.</p>
<p>ITraxx Main 5-year index has been rising more quickly than spreads on the iBoxx European corporate index.</p>
<p>And, just looking at Tuesday as an example, SocGen say “the iTraxx index was much wider earlier in the session, before recovering and ending unchanged.”</p>
<p>“The cash market started wider and barely improved despite the better tone in the markets in late afternoon.”  When they explain the reason it all sort of makes sense, since they say it is much easier to trade the synthetic indexes.  “The cash market is very resilient because over time investors have learned that whenever we have crisis, selling bonds has its downside.”</p>
<p>“Once the market recovers, it is very difficult to get the bonds back. More often than not, investors will struggle to get the bonds they want, in the size they want.”</p>
<p>Instead then, they say, investors sell the synthetic index as a hedge.</p>
<p>But this can’t last forever. SocGen say iTraxx Main 5 year normally trades at one half of the spread to the cash index. At the moment, looking at LSEG and S&amp;P data, the former closed at 58 bps on Tuesday, while the latter was at 94 bps.</p>
<p>“In our view, both series should stabilise and move back to the 2:1 ratio,” SocGen say.</p>
<p>“At current levels that means that the iTraxx Main should head towards 50bp or the cash market should see the spread to benchmarks wider at (benchmark) + 120bp.”</p>
<p>(Alun John)</p>
<h3>EARLIER LIVE MARKETS POSTS ENERGY PRICE SHOCK HISTORY REPEATING ITSELF? CLICK HERE</h3>
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<h3>EARNINGS BRIEFLY IMPORTANT FOR EUROPEAN MARKETS; INDITEX, RHEINMETALL IN FOCUS CLICK HERE</h3>
<h3>BEFORE THE BELL: FUTURES SOFTER, KEEP WATCHING OIL CLICK HERE</h3>
<h3>MORNING BID EUROPE: IT AIN’T OVER YET CLICK HERE</h3>

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