Search this website. You can use fund codes to locate specific funds

Weekly Credit Insight

Chart of the week: where is the volatility?

The market is unlikely to materially quieten down as we enter the last stretch of 2020, as multiple risks loom on the horizon. Last week the market recorded its largest move since May – something that can be seen when looking at the synthetic credit-default swap (CDS) market (see figure 1). Unlike the cash bond market, the CDS index is not benefiting from the reach-for-spread environment that has resulted in a record amount of negative-yielding assets.

Figure 1. The synthetic market

Source: ICE Bond Indices, as at November 2020.

The key question centres around how bad conditions need to get before the central bank backstops the market – in other words, at what level is the strike for the European Central Bank’s (ECB’s) put? The ECB remarked last week that it was exploring what it could do in December, which has given the market confidence that further support is a real possibility.

As we learnt in the last quarter of 2018, spreads are more sensitive to macroeconomic developments at this less-liquid time of year. High levels of uncertainty mean that dispersion in the market is unlikely to fall, as stricter coronavirus-related measures put pressure on sectors that are directly affected by changes in consumer behaviour. 

More Insights

EOS publishes white paper Fixing Fast Fashion
This paper sets out how companies can move towards circular economy approaches.
Authenticity in ESG integration
We explain why the delivery of Sustainable Wealth Creation has and always will be our core purpose.
Weekly Credit Insight
Dispersion in year-to-date returns across various parts of the global credit universe.
Zen and the art of investment management
Exploring mindfulness as a vehicle for truly responsible investing
Stewardship during a crisis: Lessons from the pandemic
Dr Hans-Christoph Hirt, Head of EOS, reflects on the pandemic and the stewardship lessons for companies and investors.
Pricing ESG risk in credit markets: through volatility, our conviction affirmed
Companies with better ESG practices tend to have lower CDS spreads, even after controlling for credit risks.