All Clear

Next week, credit indices will start trading their new vintages: series 29 in Europe, Asia and Emerging Market and series 30 in North-America (investment grade only; high yield is rolling the week after). Clearers are ready for the changes. All on-the-run indices will be cleared. The synthetic clearable universe keeps growing. Moreover, Ice Clear Europe started to report North-America trades this week extending the cross-margining from its US platform to the European platform. Ice Cleared Credit as well as Ice Clear Europe amended their web pages adding the seniority of the reference entities for single name CDS. We expect the new seniority introduced for French banks in the European financial S29 credit index: Secondary Loss Absorbing Capital (SLAC) to generate a new clearable activity on French banks’ CDS.

Ahead of the roll, with few items of macro news, last week’s activity was more driven by portfolio cleaning. Open interest in CDXIG529 declined by 5%. The CDXIG529 open interest had increased every week since mid-January. The Europe Financial Senior index (ITXES528) is the noteworthy exception with a 10% increase of the open interest - the index is closing the week 2bps wider than the global European Corporate index according to DataGrapple. It was trading flat at the end of last week. The ITXES528 is a liquid proxy to trade the Italy situation.

Single names were the most active since the beginning of the year. CDS market makers have started to offer investors to roll their 5Y contracts (Dec 2022) into the new standard 5Y (June 2023). Market makers have already reported in their market comments that investors have been active last week. The single names have been twice more active than usual. Nevertheless, the flurry of activity will happen next week. Unfortunately, Ice does not disclose its data per maturity bucket. LCH CDSClear is more transparent on that front. However, we expect to have some good news by the end of the month with improved granular data from Ice.