Taking Position: Positioning dislocations present opportunities

Research evidence excerpt

Taking Position: Positioning dislocations present opportunities

CDX HY: The S46 (on-the-run), but also the two most recent off-the-runs S45/S44

indices, have all seen similar sized net long risk additions over the last week in the

region of $180-190mn.

CDX Financials: After four weeks since the new index launch, net positioning remained

in negative territory for CDX Financials S46, indicating investors continued to use the

index as a net short. Shorts have been added to the tune of $150mn (net basis, non-

dealers positioning perspective). Note that this is the only North American on-the-run

index at a net short position (from a non-dealer’s perspective).

iTraxx Main: Longs have been cut and shorts have been added in the on-the-run S45

Main index. Over the previous week a net $4.3bn of risk has been pared. On the flip side

S44 saw net longs extended by around $2.8bn. Within the rest of the off-the-runs, risk

positioning shifts were on the risk reduction/net short addition when aggregated across

all the other series.

Crossover: In European beta land, shorts were pared in S45. The on-the-run S45 index

saw c.$2.5bn of net shorts cut w-o-w. On the flip side, the S44 (most recent off-the-run)

saw shorts cut to the tune of $0.7bn. Limited net risk activity was reported on the rest

of the off-the-runs.

Senior Financials: Long live the compression trade. The on-the-run S45 saw shorts

pared and longs added, leaving the index at a net long risk positioning (from a non-

dealers’ perspective). The net positioning shift was around $1.1bn over the previous

week. The off-the-run S44 saw net shorts expand w-o-w by around $750mn.

Subordinated Financials: A mere $280mn of net shorts were added over the past

week for the S45 iTraxx Subordinated financials index.