Overcoming the high yield liquidity challenge

June 2019

Is your European high yield easy to trade when it matters?

In European high yield, both bond and CDS indices saw high volatility in May.

Source: Bloomberg, 31 May 2019. Past performance is not a reliable indicator of future performance.

In this situation, funds tracking bond indices tend to trade at a discount because of liquidity issues in the underlying bonds. This may make redemptions more costly.

In contrast, CDS indices tend to be more liquid at times of stress, as seen in the below chart showing the jump in trading volumes in the iTraxx Crossover 5y in May, when spreads widened by over 50bps. Because they allow you to trade credit risk without trading the underlying bonds, these indices are becoming the default option for large market participants.

Source: Bloomberg, 31 May 2019.

Our long and short European Crossover UCITS ETFs allow you to benefit from this enhanced liquidity; they directly replicate the iTraxx European Crossover Long Credit (ITRXXOVL) and iTraxx European Crossover Short Credit (ITRXXOVS) indices.

ITRXXOVS takes an inverse position in European high yield credit via a protection buyer position on the iTraxx Crossover 5y. The strategy, which tends to profit from spread widening, particularly during rapid sell-offs, was up 2.9% in May.

It has an inverse correlation with the ITRXXOVL Index which takes a protection seller position on the iTraxx Crossover and fell 2.4% during the same period.

10y return (ann.)

10y volatility

10y correl. v. ITRXXOVS

iTraxx European Crossover Short Credit




iTraxx European Crossover Long Credit




Markit iBoxx EUR Liquid High Yield Index TR




Source: Tabula, Bloomberg, 31 May 2019. Past performance is not a reliable indicator of future performance.

Visit our product pages to learn about our ETFs for gaining efficient exposure to ITRXXOVS and ITRXXOVL:

Important Information

This document is issued by Cheyne Capital Management (UK) LLP (“Cheyne Capital”), a limited liability partnership registered in England and Wales (Registered no. OC321484 – registered address: 6th Floor, Denham Building, 27 St. James’s Street, London, SW1A 1HA). Cheyne Capital is authorised and regulated by the Financial Conduct Authority (“FCA”). Tabula Investment Management Limited (“Tabula”) is an Appointed Representative of Cheyne Capital. Tabula is a private limited company registered in England and Wales (Registered no. 11286661). Business address: Sixth Floor, Denham Building, 27 St. James’s Street, SW1A 1HA, London.

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