How's That Credit Hedge Working Out for You?
The ECB's corporate bond buying highlights a long-running difficulty in the credit market.
Mario Draghi, president of the European Central Bank (ECB).
Photographer: Martin Leissl/Bloomberg *** Local Caption *** Mario DraghiThis article is for subscribers only.
The European Central Bank's "shock and awe" corporate bond buying has failed to impress one corner of the credit market.
Bank of America Corp. analysts led by Ioannis Angelakis point out that while the corporate-sector purchase program (CSPP) has suppressed risk premiums in the market for cash debt, it's done little to tighten spreads in the synthetic market composed of credit default swap (CDS) indexes.
To the analysts, the opposing paths of cash and synthetic credit can easily be explained by how investors have been using CDS indexes as a way to broadly "overlay" their bond portfolios or bet on the risk sentiment of the overall market.