Can someone explain the situation when the next version of some CDX index is created after index maturity, so the version is created, but that version is not being traded as series already matured? Why it is happening?
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2 Answers
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SE!
There might be a misunderstanding on your side I think. If I misunderstood you, you might want to rephrase your question.
There might be a misconception between on/off the run contract and matured contract. The old version still exists until its respective maturity, it is just less and less liquid as it is "off the run".
For Europe, if we look at the itraxx Europe Series 34 5y, started the 21st of September 2020 and matures 20th of December 2025. It will exist until then.
For the itraxx europe series 33 5y, started the 20th of March 2020 and matures the 20th of June 20205.
Today, both series 34 and series 33 exist and can be traded. However, series 34 is the on the run issue. Many market participants will have "rolled" the series 33 by closing their positions and re-opening analogue positons in the series 34 contract.
answered Sep 29, 2020 at 11:52
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A new series is created now every 6 months. It becomes the "on the run series". The previous series are "off the run". They can still trade until their maturity, but they have less liquidity (less volume, wider bid-ask). In a new series, names are sometimes deleted, new names are added to replace old ones; for indices that are not equal-weighted, the weights are sometimes changed.
We sometimes refer to the series maturity, meaning 5Y. This is a little sloppy, because indices like CDX IG and HY have 5Y, 7Y, and 10Y teors. The 5Y is by far the most liquid, but after it matures, the 7Y continues to trade (very thinly) for 2 years, and 10Y continues to trade (very thinly) for 5 years.
When a single name experiences a credit event, or has to be removed for some other reason, then a new verison is created for all the indices (on the run and off the run but not yet matured) that contained this name. The previous versions cannot be traded. The only change to the index is that the notional factor is reduced by the weight of the deleted name.
The previous version cannot be traded because that's how indices are designed. While you can trade a single-name CDS after a credit event and until the auction to take a view on recovery, it is a very different trade from an index that expresses the view on credit spreads, not on recovery.
Let us look at mark-it.com/NewsInformation/ViewArchive/CDX for an example. June 30, 2020: "Following the confirmation of a Bankruptcy Credit Event on Chesapeake Energy Corporation, new versions of all affected Markit CDX indices have been issued with an annex date of 30th June 2020." The earlist afftected series I see is CDX.NA.HY series 15, which got a new version 21. Although the 5Y and 7Y S15 matured years ago, but the 10Y S15 matures December 20, 2020 and still can be traded, at least in theory. Therefore it needs a new series.
I have not seen a situation where a new version would be created for an off the run series that has already matured (including 10Y). Maybe some automated process does it, but I don't see it happening.
answered Sep 29, 2020 at 13:24
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$\begingroup$ thanks, but actually I am talking about the situation with the new version, not the series. And we have a situation when the index matures, for example, June 2020, but in Sept 20 new version is being created and it doesnt have pricing information. And the question is what can be the logic to create a new version for some series if this series already matured $\endgroup$– RomanUSep 29, 2020 at 16:00
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1$\begingroup$ Perhaps you mean that although CDX.NA.HY 5Y (whatever series it was.. 21, I think) matured June 2020, but 7y and 10y still trade (although are not very liquid) and need new versions after credit events? $\endgroup$ Sep 29, 2020 at 16:58
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$\begingroup$ no, I mean the situation when the series maturity date is Sept 20 and on that day only one version exists, but later(for example, in November the same year) new version was created (version 2) when the series was already matured, which looks strange for me $\endgroup$– RomanUSep 29, 2020 at 18:26
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1$\begingroup$ Let's look on mark-it.com/NewsInformation/ViewArchive/CDX for an example. June 30, 2020: "Following the confirmation of a Bankruptcy Credit Event on Chesapeake Energy Corporation, new versions of all affected Markit CDX indices have been issued with an annex date of 30th June 2020." The earlist afftected series I see is CDX.NA.HY series 15, which got a new version 21. Although the 5Y S15 matured long ago, but the 10Y S15 stil can be traded, at least in theory. $\endgroup$ Sep 29, 2020 at 18:53
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1$\begingroup$ (10Y S15 matures December 20, 2020) If you mean something else, can you show a concrete example please? $\endgroup$ Sep 29, 2020 at 19:42