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The HY24 Roll and Some Expected Compression

So the HY CDX roll is over and done (see red arrow). The initial roll widened to the intrinsic bps 347level, while the 10Y index market spread was 350 (price was . After this, tightened to 330. I would say the intent of the roll to 24 composition was to give you more liquidity in exchange for wider spread. Here’s some color now that the dust has settled a bit.

Here’s the substance driving the move. Five names left the index in the roll from CDX.HY.23 to CDX.HY.24. Upside Out: RadioShack and Caesar’s were out because of default. Downside Out: Dillard’s, Kinder Morgan, and Seagate Technology are rising stars upgraded to BBB-. The names replacing them were Avon, Genworth, Peabody Energy, and PPL Energy, and Safeway. Peabody spread is 1172 bps. Maturity Extension of the 5Y index was extended by six months, which materially affects OTR and OFR spread. A little skew of the intrinsics to index, nothing remarkable.

The HY-IBoxx (cash) basis now stands at about historical averages.

Something to think about here is that HY24 has 5 energy names in the index while IG24 has 12 names in energy. It has been HY that has seen the most pressure due to oil price declines and CDS energy spreads are actually tight to oil prices, so it would make sense that IG24-HY24 spread should compress as revenue impacts IG balance sheets in the coming months.

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