Back in March 2012, the credit derivatives research team at London-based hedge fund CQS noticed something odd. The ninth series of Markit’s CDX North American Investment Grade index (IG 9), which references 121 corporates, was far cheaper than it should have been relative to the underlying cash bonds, given that around 30 of the constituents in the off-the-run index had been downgraded to sub-investment grade.
CQS was looking for a cheap hedge, so bought credit default swap (CDS) protection. Soo
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