From Bruno Iksil's Personal Profile: Enjoys "Walking Over Water" And Being "Humble"

Tyler Durden's picture

Would anybody be surprised to learn that the man who is now singlehandedly (according to press reports) moving the IG index, Bruno Iksil as covered here on Thursday afternoon, has a reference to a gorilla, Jesus and, paradoxically, to personal humility (but not serving the clients? Unpossible) on his personal Bloomberg profile? Not us.

And for those who wish to take on windmills and get involved in the latest market now solely dominated by JPMorgan, here is a trade reco from Peter Tchir.

Buy IG9 10yr protection and Sell IG18 protection against it

The market has been fixated on the IG9 10 year index for weeks.  It is trading extremely rich to intrinsic value.  Using a spread of 126, we still see it being at least 10 bps rich.  IG18 which had been trading 7 bps rich at the start of last week is now only about 1 bp rich.  It looks like the trade would be paying 126, vs selling 100.50.  We would be outright short IG9 10yr, but with the recent move, we think the risk of a bounce is too high so prefer this trade.

Although IG9 10 year is trading very rich, anyone who attempted to short this, either outright or versus IG18 has been hurt.  It has been a painful trade, but is also a reason IG18 traded so rich post the March 20th roll as many funds put on this trade prematurely.  I think we finally have a catalyst.

Bloomberg broke a story claiming that one party in particular is responsible for the trade.  From what I can tell, they have some things a little wrong, but the gist of the story matches what I’m hearing in the market.  I believe one counterparty in particular has been selling “tranches” of IG9 in size rather than selling the index itself.  That does make a difference, and I actually think selling the tranches are a good trade, but it doesn’t materially affect the dynamics of the trade we are looking at here.

The big seller is likely to slow down the selling pressure on that index.  Regardless of how smart the trade is (and the tranche angle is particularly compelling) there is likely to be pressure to stop adding to the trade.  No firm wants to be on the front page of newspapers about taking too much risk, especially exotic derivative risk as opposed to making lots of mortgage loans.  If that selling pressure eases, you will see hedge funds attack this index.  There are even some other weak longs in the index, as they saw the momentum, and in spite of the fact that the index was trading extremely rich, they got long this index under the assumption the support would make it harder to go wider than the on the run index.

I don’t think the alleged big seller will be forced out of positions, because I do think the bulk of the risk remaining on the books is in tranche format, and I think it is both compelling and a longer term structural view, rather than a quick in and out on the index itself.  But an index that is more than 10 bps rich is susceptible to spread moves wider, and just the absence of an incremental big seller should be enough to push it towards fair value.

The maturity date of IG9 10 year also helps push the trade towards fair value.  IG 9 10 year, has a maturity date of Dec. 2017.  On the September CDS roll, it will have the same maturity has IG19, and will be the “on the run” date for single names – making the arb far easier to implement.  That is an unusual feature of this index – the roll down, normally a problem for the “arbs” actually helps in this case.  Once the index moves to trading to the “on the run” date, it will be very hard for it to maintain the richness.

So we really like being short IG9 10yr.  We would sell IG18 against it for now as market does seem at risk of a bounce tighter.  The actual arbitrage would be a better trade, but that is hard for anyone not already set up to do that.  The lack of a big seller, a few weak longs, and the roll towards being “on the run” should all be enough to push this index towards fair value.  The fact that a lot of the risk at the big counterparty is in tranches rather than straight index is another useful feature in our opinion as there is less “need to defend” the position. 

I think the tranche itself is an attractive trade, but that’s another story.  IG9 is actually the most active index in the tranche market.  It was the “on the run” index heading into Lehman, and the tranche market has never fully recovered, but there were so many old tranche trades and synthetic cdo’s outstanding that IG9 tranches have continued to trade as a way to largely manage those residual risks, and more recently as a way to pick up spread in a tight spread environment.

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Colombian Gringo's picture

Walking on water... must be doing God's work for the Banksters.  I wonder, however, which God?

Spooky Polish's picture

$,€, power and bitchez ofc...  

francis_sawyer's picture

Monkey see Monkey do...

djsmps's picture

CNBC is nothing but a continuous free advertisement for Apple.

TooBearish's picture

Be sure to ask JPM to price this one up....and if u trade with them better have alot of excess collateral around or a JC get outta jail free card....

mess nonster's picture

The London Whale doesn't need to walk on water.

ZeroPower's picture

They price pretty much all the popular credit indices in their runs depending on what contacts you have on your bbg

catacl1sm's picture

Class I Douchebag.

SheepDog-One's picture

What IS a 'champion of 'kick-it' anyway?

GMadScientist's picture

Wait until he gets to the crucifixion!

firstdivision's picture

Wow, I think one would be hard pressed to make themselves out to sound douche-ier than this guy.

geotrader's picture

No tattoo of 'MOM' on his bicep?

Quinvarius's picture

JPM has been too vocal lately.  Jamie whines about regulations.  Blythe does a strange interview.  This character is caught breaking markets.  I sense a problem.

poopman's picture

now this is just offensive on the day after we celebrate our lord and savior being resurrected. i celebrated with eggs dipped in ink and candy and a holy rabbit, as a good Christian does. We bought clothes and gift for our children to remember and celebrate our Messiahs resurrection. Jesus loves consumerism and greed and we love Jesus.

Quinvarius's picture

We all live in fear of when the Zombie returns to punish us.  Only offerings of colored eggs and chocolate keep him at bay.

The Beam's picture

I enjoy headbutting walls = warning people of the PAIN that is about to come.

I enjoy insanity = telling people the same thing and expecting different results.

Oh, and I like my Belarusian wife and my bunker.

mrdenis's picture

Rin Tin-Tin walks the walk .... .

falak pema's picture

moby dick , the white whale and captain ahab, who is who's nemesis... This is a game of male hubris against market hubris. I don't think that Iksil is anybody else than the relentless urge to never accept the verdict of the market; beat the dumb herd and stay one step ahead, pipe dream or genius? Its depends if we are at Austerlitz or Waterloo...I don't see an Iron Duke to puke on Bony; so maybe we are still at Austerlitz. Its still early in the game...unless 2008 was the Moscow moment for financial hubris, in which case we are at Leipzig or even at...well lets not be deterministic about it...its only a fly in the huge financial bucket.