A Cautionary Misalignment in High Yield

October 18, 2022 — While low liquidity in the cash bond index has caused spreads to stay tighter than fundamentals would suggest, the large amount of CDX purchases by speculators and hedgers alike has pushed CDX spreads much wider in 2022. This leads us to two conclusions: 1) Cash spreads will likely need to go much wider soon, and 2) When credit capitulation does occur, the cash index will be rife with credits that trade wide of where their default risk implied value sits based on CDS, a bargain hunter’s dream.

  • DATE: October 18, 2022
  • TYPE: PDF
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