Active LCDX continues outperformance against HY

LCDX ended the week on strong flows Friday, with activity reported by dealers across series eight, nine, 10 and 12, as well as at the three-year point in LCDX10. This despite the close watch traders are placing on potential constituent defaults RH Donnelley and Georgia Gulf, the first of which entered a forbearance agreement with bondholders on Friday until 15 June. The LCDX reference entity RH Donnelley Inc has not yet triggered, however, but traders say it and that of Georgia Gulf appear imminent.

The overall tone in LCDX on Friday was negative, as with the rest of the credit market, but at just 0.25 points lower to 81.25 on the day, LCDX showed relatively strong resilience – particularly when compared with CDX HY, which closed down around a point to 78. The session was a continuation of the trend that began in the second half of the week, with HY falling around three points in as many days while LCDX dropped just two points during that time.