Analysts at Credit Suisse in their latest research report advise to sell short term volatility to fund long term volatility. They say default rates, even though they are expected to rise, remain low in historical terms.

The option volatility collapsed for both the Main index and the Crossover index over the last few weeks, they say. Better than expected Q2 earnings results for non-financial names and lower commodity prices have stabilised the spreads.

Credit Suisse advises waiting for Q3 earnings for guidance on the direction of profit margins and default rates. Thus, the analysts remain defensive by being net long volatility through a December payer position. A main index payer spread structure they recommend is to sell iTraxx S9 Main September payer strike 90bp in 1x. A Crossover payer structure they like is to buy iTraxx S9 Crossover December payer strike 550 bp in 1x.