Selling 22-100% iTraxx Europe still attractive, says UniCredit

Taking a fundamental view that the financial sector and systemic issues must be solved sooner or later, UniCredit says that selling protection through iTraxx Europe 22-100% tranches is still attractive at current levels. However, analysts caution that illiquidity in the credit default swap market continues to exert a technical affect on the tranche market. The bank notes that the previous running spread quote for the iTraxx Europe 3-6% tranches changed to an upfront quote (see previous Creditflux article "No consensus on iTraxx moves to boost liquidity").

As a recovery of the financial sector is a prerequisite for the recovery of economies, the financial sector remains the hot spot for credit markets. Non-financial corporate CDS this year outperformed financial CDS, UniCredit observes. The midterm tightening trend in the Europe index is therefore primarily driven by the non-financial sector. Non-financial single-names whose weekly spread-changes of five-year CDS in iTraxx Europe were greatest include ArcelorMittal Finance, Enel, Marks and Spencer, Continental Aktiengesellschaft, and Lafarge.