The big event in the European credit default swap world on Thursday was the “roll over” of the major iTraxx indices.
The biannual roll sees less liquid names removed from the indices and more liquid ones added. The new composition of credits led to a widening of the European indices on Thursday morning as traders adjusted to the inclusion of higher-yielding names.
The iTraxx Crossover (now series 9) was at 617 basis points immediately after the roll, versus the close for series 8 of 562bp. But by mid-morning that had tightened to 599bp according to SocGen prices.
The iTraxx Europe rolled over at 145bp but tightened back in to 135bp as traders closed up positions ahead of the Easter break and reacted to positive US stock futures.
But Credit Suisse widened by around 15bp to 145bp after it said big debt writedowns and tough markets made it unlikely that the bank would be profitable in the first quarter.
The 10 new entrants to the iTraxx Europe index of investment grade credits included Societe Generale, HBOS and J Sainsbury. The UK supermarket re-entered the index despite the fact its CDS was “orphaned” (pinned upon debt that no longer exists) after it refinanced its senior debt with CMBS in 2006. But its CDS still actively trades on expectations of new debt issuance.
BAA lost its struggle to avoid being included in the Crossover (which can lead to higher spreads), and joined ITV and Kingfisher among others in the new series. Markit, the data provider which administers the process, only admits credits with at least twice the average spread of the constituents of the iTraxx Europe non-Financial index.
The US indices will roll over on 25th March.